The growth in the alternative finance market over recent years has been prolific. Great news for borrowers. Yet the debate always seems to pit alternative finance against traditional bank debt. This polarisation isn’t helpful for borrowers. In my experience, it’s collaboration between altfi and traditional lenders which will unlock the funding gap for British business. What British business needs is the right guide to navigate the new funding landscape.
Fact – Altfi has changed the funding landscape
Alternative finance is here to stay. British borrowers are no longer restricted to a finite list of bank debt products. There’s now peer to peer lending, crowdfunding, pension led funding, to name a few. I could go on. The emergent fintech players, commonly referred to as ‘disruptors’, are now credible operators and becoming part of the global financial services establishment. Crowdfunder investment platform SyndicateRoom recently gained intermediary status with the London Stock Exchange. A hallmark of an established financial services business.
Fact – Altfi can help borrowers access finance quickly
Alternative lenders can generally help borrowers access finance more quickly than traditional lenders. The technology on which many altfi offerings are based allows lenders to be more flexible in their approach and nimble in their decision making processes. We regularly help borrowers secure short term cashflow finance from alternative lenders to stabilise the business in anticipation of significantly larger funding requirements, which they may ultimately secure from traditional lenders or equity investors.
Fiction – Altfi will ultimately displace traditional lenders
Bank debt has its place. The cost of capital for banks is significantly less than that of alternative lenders. So, for borrowers looking for debt over a longer term, traditional debt is still likely to be the cheapest of options. The challenge for British business, particularly SMEs, is satisfying all of a traditional lender’s credit requirements.
Fiction – Borrowers must choose between alternative or traditional finance
It’s a common misconception that borrowers must choose between alternative or traditional finance. The Government’s bank referral scheme does nothing to clear up the confusion. Under new rules, yet to be implemented, banks are obliged to refer declined borrowers to one of three approved online platforms to access the alternative finance market. This reduces the likelihood of banks and alternative lenders working collaboratively to meet borrowers funding requirements. Although it’s encouraging to some banks starting to work more collaboratively with the alternative finance market.
Savvy borrowers are blending alternative and traditional debt, getting access to the finance they need at the right price, and preserving their valuable banking relationships.
At Finance Generator, our people make finding business finance straightforward. We find finance solutions, which may include bank debt and/or alternative finance, alongside other products. We manage the credit and legal processes, through to cash in a borrower’s account. Collaboration is at the heart of our approach. By seeing things from the borrower’s perspective and acting solely for the borrower, we help blend the traditional and alternative finance markets to close the finance gap for British business.
Jon Whitbread, May 2016