Our recent appearance in the Daily Mail Online sparked lively debate amongst those concerned with the future of bank lending and where the blame lies.
One of the principal arguments made in response to the article was the effect that low interest rates are having on net lending figures. It was suggested that low interest rates are causing firms to pay off their old, previously high interest loans faster than new, lower interest loans can be repaid – therefore creating an inevitable downward trend in lending figures.
While this might be true in a time when the appetite for borrowing is as suppressed as the appetite to lend, it is the availability of new lending as the economy needs to expand that worries us the most. Good businesses now want to borrow, their confidence is returning and entrepreneurs recognise the need to invest to grow.
Banks stating that a lack of demand from businesses is the cause of the decrease in lending is unsatisfactory for many. The demand exists alright; it is the perception of locked vaults and fear of rejection that is driving down the demand.
We have some sympathy with the invidious situation the banks find themselves in. They are understandably fearful of incurring bad debt that they can ill afford to carry. At the same time, the capital requirements made of them by the Bank of England while they rebuild their balance sheets force down their capacity to lend, whether the desire exists on the front line or not.
Few would argue that the banks weren’t responsible for the financial collapse in 2008, but whether they alone are culpable for a slow recovery is a different matter. What is, however, undeniable is the apparent feeling of unease between businesses and their banks – it is the lack of trust that has caused businesses to look outside traditional spheres for more reliable sources of finance.
And it is here where Alternative Finance has come into its own. Forecasts from the Open Data Institute predict that the Peer-to-Peer lending industry will be worth £1bn by 2016 if it continues to grow at its current speed. In the light of this, it may come as no surprise to learn that we have grown by 5,000% since our launch barely a year ago. In the last 12 months, we have advanced over £17 million to Britain’s SMEs and are proving to be a leading player within the Alternative Finance space.
Despite some arguing that the media portrays the banks too negatively, the fact remains that there is a deficiency between supply and demand for finance. Alternative Finance companies are helping to plug the gap.
Although banks still account for 90% of lending, non-bank finance has positioned itself as a worthy alternative. Online platforms are fast becoming the source of cashflow for the business of the future. Gone are the days of visiting your bank manager in your Sunday best and asking for a loan. Alternative Finance, including Invoice Trading, is fast becoming the twenty-first century solution to decreasing levels of business lending – keep up Jones!