The takeover of the non-bank lenders

1 January 2014

Around the world, non-bank lenders to small businesses are becoming a force to be reckoned with. 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 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 tech-enabled lenders are popping up everywhere, 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 fintech lenders to small business (such as and (which acquired Everline) all growing at very high growth rates. The UK is even seeing the emergence of completely dedicated small business banks to fill the gap left by the high street banks. Aldermore is one of these banks and since opening for business in 2009, has already lent over 1 billion pounds to SMEs across the UK.

Government support

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 latent demand for small business credit. What is needed is for traditional lenders with the balance sheet capacity to really make an impact to small business liquidity, to start lending to SMEs en masse. A UK government program called Funding for Lending Scheme is an innovative example of a policy designed to increase bank lending to small business. 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.