SMEs should start exploring alternative options to traditional bank loans - here's why: Rebecca Blaymires

If this SME Supporting Factor is removed, it may force lenders to demand a higher leverage against loans to small and medium-sized businesses.

I, like many in the financial sector, am concerned these measures will block economic growth and hold back SMEs that are already grappling with huge financial uncertainty.

In a nutshell, these proposals could mean traditional bank loans become even harder to come by, or, for those businesses that can secure the loans, they will likely be more costly.

Rigid lending criteria is also less likely to impact established firms that have long and strong performance histories, further disadvantaging the newer and developing SMEs from competing.

External finance is often a crucial tool for SMEs to accelerate their growth, whether that be to expand operations, recruit or launch product lines.

Our research found that SMEs are crying out for lending support, as 43 per cent of the 300 SMEs surveyed for Growth Lending’s Don’t Bank On It report described their need for investment as “significant”.

But stricter lending rules for traditional loans, coupled with a growing malaise among SMEs in their attitudes towards the banks, may mean alternative lending options become more attractive to businesses.

Perhaps unsurprisingly given the well-documented turbulence in recent years, 30 per cent of the SMEs we surveyed said they are less likely to borrow from traditional banks now than they were previously.

When asked why, 29 per cent said their trust in the banks had been eroded by events such as the 2008 banking crisis and the treatment of firms by banks during the Covid-19 pandemic.

Nearly a quarter of respondents (23 per cent) said that the terms offered by traditional banks are unsustainable for their business.

With many already turning their backs on the banks, it is important that SMEs understand a world of alternative lending opportunities awaits them.

Some of the options available to SMEs include invoice finance, which enables businesses to advance capital tied up in owed payments, and growth debt options such as revenue-based finance, where both the amount a business borrows and repayments are linked to its regular recurring revenue. But many SMEs are sceptical or unaware of non-traditional lending options, and some still don’t consider debt a necessary tool for growth.

Not every type of alternative finance is going to fit every business, but it is better that business leaders explore these options than let a business with enormous potential stagnate.

I believe better education and wider awareness of the alternative funding methods available on the market are needed, so that SMEs know they are not just restricted to banks and unsuitable terms – or feel that they have no options at all if banks turn them down.

Rebecca Blaymires is Associate Director at Growth Lending