Although many small to medium-sized businesses turn to high street banks for finance, many are using alternative finance.
According to figures by UK Finance, eight out of ten loan applications from small to medium enterprises (SMEs) were approved by banks in the second quarter of 2018. An SME that is refused a loan can turn to alternative finance. Some businesses that need finance for niche of complex deals, choose alternative finance anyway – especially with bridging loans.
The main advantage of alternative lenders is they are flexible in assessing loan applications and can often approve loans that banks turn down. Another advantage is that a loan decision and the availability of funds can be quicker than banks. Alternative lenders are also more willing to negotiate loan terms such as loan-to-value and fees.
Bridging lenders are willing to consider loans for businesses and individuals who do not have a good credit rating. As long as the asset used as security covers the loan amount and there is a clear plan of when and how the loan will be repaid, lenders can overlook a bad credit rating. There is fierce competition between bridging finance lenders, and this has resulted in lower interest rates.
Alternate lenders do not always directly compete with large banks. They provide a specialist service for niche finance areas that the banks do not operate in. After the financial crisis of 2008, banks became more cautious about lending. Alternative lenders can be less cautious.