small business lending – the non bank lenders takeover

6 Jan, 2014 | Articles

In the UK, non bank lending to small and medium enterprises (“SMEs”) is at its highest in 5 years. That’s pretty remarkable given the contraction we have seen from the traditional lenders to the commercial and small business sector.

But what is even more interesting is that this story is repeating itself across the globe – small innovative lenders are popping up, carving out a niche and offering a competitive lending product to small business. The growth in non bank lending across the globe is growing at a phenomenal rate and there’s nothing to suggest it will slow down any time soon.

We are seeing asset based lenders, invoice factoring and invoice discounting companies, peer to peer lenders, merchant cash advance companies as well as technology-led small business lenders (such as kabbage.com and everline.com) all growing at very high growth rates. In the UK you have even see the emergence of completely dedicated small business banks to fill the gap left by the high straight gaps. Aldamore which only opened for business in 2009 has already lent over 1 billion pounds to SMEs in the UK.

So with all this activity, why is it still so hard for businesses to get a small business loan? Well, the reality is that all these new lenders are only scratching the surface of the demand for small business credit.

What is needed is for the traditional lenders, with the balance sheet capacity to really increase liquidity to small business en mass, to start lending to SMEs.

The UK government program aimed at getting banks lending to small business is a really innovative program. Governments around the world should look at this carefully as a model to replicate. The only problem with it? Its too small and not aggressive enough to make a big difference.