Business lending slump defied by alternative finance

– Alternative business lending grows by 16% in the first three months of 2013
– Record £360 million in short-term secured loans to businesses over last year
– Over 80% of intermediaries say firms are still missing out on alternatives

Business loans by alternative lenders have significantly outpaced mainstream commercial finance in the last twelve months, according to a poll of financial intermediaries.

In a recent survey of 350 brokers carried out by peer-to-peer lender West One Loans, intermediaries reported 16% quarterly growth in short-term commercial loans secured against real estate assets. The expansion is the second highest rate of growth ever recorded, and brings commercial alternative lending to a new record high.

This compares to data from the Bank of England released this morning, showing a 5.2% drop in mainstream business loans in Q1 2013.

Duncan Kreeger, director at peer-to-peer lender West One Loans, comments, “Politicians are talking-up the economic recovery, but the vast majority of lenders are still in full retreat from business lending. It remains to be seen whether last week’s Funding for lending tweak will have any impact on mainstream business loans. But the odds don’t look great.

“Meanwhile alternative lenders are galloping twice as fast in the other direction, now providing a million pounds in business loans every day. A growing number of UK firms are turning away from the inflexible packages on offer from traditional lenders. They want the personalised approach of smaller and more modern lenders. Peer-to-peer models are the most flexible of all, with sophisticated private investors who can take the initiative where cumbersome institutions fail.”

The latest increase leaves the value of short-term business finance secured against real estate at a new record – at £360 million in the last twelve months.

This compares to £210 million in the same quarter a year ago, and means alternative business lending has more than doubled since the end of 2011, when this figure stood at £170 million.

Poor understanding of alternative options

However, intermediaries report the latest expansion comes in spite of poor understanding, with 81% of intermediaries believing some of their clients are missing out on the opportunities offered by alternative funding.

Over one quarter of intermediaries (27%) said poor understanding amongst clients is in fact the biggest barrier of all to the completion of alternative finance deals.

In November only 14% thought a lack of understanding was the greatest obstacle to alternative finance.

Duncan Kreeger continues, “Streamlining other processes has brought to light the most critical step of all – knowledge of the options on the table. This is really a huge opportunity in light of the industry’s growth so far.

“There will always be a lag between developing new products – like second charge loans or specially-designed commercial deals – and their wide take-up. After all, that’s why it’s called alternative lending, because it keeps adapting. Alongside our broker partners, we’ve recently become aware of a new breed of commercial client, as knowledge of new finance spreads.”

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