Why should London business owners look beyond their banks?

According to a recent Growth Street survey of 462 London SMEs, 60% of business owners in the capital haven’t considered looking beyond their bank to find funding.

At a time when the big banks are becoming increasingly cautious about lending to businesses – recent analysis shows the value of loans to SMEs fell by over a half last year – it may come as a surprise that there’s been little attention paid to the non-traditional options.

London isn’t alone, though. SMEs in cities up and down the UK are likely to have only considered their bank when looking for funding. Only the 171 businesses in Manchester we polled reported to be more likely than London to have looked at their non-bank options, although even they had only a 43% chance.

There was also a noticeable gap along gender lines. UK-wide, of the 2,006 businesses surveyed, women were far less prone to have considered non-bank options (29% of women, compared to 42% of men). Perhaps less surprisingly, millennial business owners proved to be the most open to the idea.

It’s all down to education

We suspect the reason for this is a lack of knowledge about the alternatives to the bank. Just 31% of London businesses polled said they had a good knowledge of the non-bank finance options. Worryingly, this is actually a decrease on last year, when 42% said they had a good understanding.

Another factor could be the scarcity of advice. When asked where their first port of call would be when looking to secure finance, just 19% of London SMEs said they would consult a third party (such as an accountant or broker). Instead, over half said they would go straight to their bank.

Greg Carter, CEO of Growth Street, said:

“At a time when the banks are withdrawing support for UK SMEs, it’s more important than ever that business owners broaden their horizons when looking for ways to support their future growth. With a growing number of new finance providers entering the market each year, the opportunity for businesses to secure funding isn’t going away – it’s just going to come from somewhere else.

“There’s still a lot of work to do on the part of the finance providers themselves, though. In particular around education, as there’s clearly not enough awareness of the other options available to SMEs outside of their bank. That’s where Growth Street can help.”

An opportunity to look beyond the banks

With a growing number of non-bank and specialist finance providers entering the market, businesses may be able to find products more tailored to their specific needs. A bank term loan, for example, often can’t provide the flexibility or cost-effectiveness some require, especially seasonal businesses. On the other hand, fees charged by banks to open and maintain an overdraft can make it more hassle than it’s worth.

What’s more, on top of a shrinking appetite for business lending, a report in The Times revealed that it’s becoming increasingly difficult just to get an application for bank finance off the ground. Some banks, for example, have gotten rid of their regional relationship managers, expecting SME owners to phone a call centre and discuss terms with someone who may not even know the local area.

This is where modern finance solutions, such as GrowthLine, might be able to help. GrowthLine is a flexible line of working capital that works very similar to an overdraft. However, unlike a bank overdraft, we don’t charge any hidden fees. It can also be incredibly quick to get an application submitted through to making your first draw down – a recent Growth Street borrower got approved and set up with their GrowthLine in just eight days.

It’s high time small businesses shake up the old guard, and start making the most of what we think has been a big missed opportunity. The banks are no longer looking after their SME customers, so why not find someone who will?

Growth Street Limited is registered in England & Wales (company number 09264172).

Our registered address is 5 Young Street London Greater London W8 5EH United Kingdom.

Written on in Business Insights Borrowing