Government Business Bank outgunned by alternative finance

– Business Bank’s initial £300m already overtaken by £354m in short-term secured loans to small and medium-sized businesses
– Life-time £1 billion for the Business Bank to be matched by business bridging by Q3 2014
– Expansion of bridging industry to continue – as brokers predict 36% annual growth

The government’s Business Bank will not be able to keep up with alternative sources of small business finance – and has already been outgunned since its creation.

Since the formation of the Business Bank in September, it has released £300m in small business loans, with complete take-up of the finance expected no sooner than the middle of Q3 this year.

Meanwhile, over the same period, bridging finance has provided £354 million in completed business loans to small and medium-sized enterprises (SMEs), according to research from lender West One Loans, based on the West One Bridging Index, and the predictions of 350 financial intermediaries.

Even if the entirety of initial funds from the Business Bank are transferred directly to SMEs within a single quarter, lending by alternative sources of new SME finance will have outpaced the flagship government initiative to the tune of 58%, or an additional £173 million, by October this year.

Duncan Kreeger, director of peer-to-peer bridging lender West One Loans, comments, “For half a decade small businesses have been missing out. Banks may as well have shredded the majority of quality business plans they’ve received. And for all that time the largest banks have been touting misleading excuses about a lack of demand. It simply isn’t the case. There’s enormous demand from small firms for vital investment – demonstrated clearly by the rise of alternative finance.

“Government aspirations to lend to small businesses are noble, but could be misguided. In the longer-term, the Business Bank could be doomed to failure just by a lack of firepower. And right now it’s already proving unwieldy. Just as the biggest corporate lenders are seeing their market share slip away, the Business Bank is being outmaneuvered by nimbler players.

“The Business Secretary claims setting up the new institution needs to be slow, and that it’s necessarily very complex. But if so, then the new Business Bank is just a miniature re-run of the old business model – one of stalling lending levels and near monopolies leading to poor customer service.”

Industry Gross Bridging Lending to grow 36%

Intermediaries are budgeting for 36% annual growth in total gross bridging lending, according to the latest West One Broker Sentiment Survey. Of this total figure, business bridging specifically is forecast to more than keep up with other areas.

In total, the industry provided £1.61 billion in gross lending in the year to Q1 2013, according to the latest West One Bridging Index. Business loans represent just over 21% of the wider bridging industry, with secured loans for property-related purposes making up the rest.

The proportion of borrowers choosing to use secured loans for business purposes has more than kept up with the size of the total bridging industry, growing as a proportion of funding as well as in absolute terms. Six months ago, in November 2012, business finance had only just broken the 20% mark of all bridging lending.

Alongside greater availability of bridging finance, borrowing rates are set to decrease too. A record 57% of intermediaries predict borrowing costs to fall, over eight times the number expecting higher rates (7%). Previously, 45% of bridging intermediaries expected lower interest rates, in November last year.

Duncan Kreeger concludes, “Bridging is providing small businesses across the UK with over £1 million in finance every day. It’s no surprise that we’re outpacing the government’s business bank – we’ve been expanding our lending to these sorts of small, locally important firms for years now. This industry’s doing what the high street has failed to do since 2007. Bridging finance is expanding at a steady double-digit pace – and at the same time it’s becoming more affordable for our customers.”

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