There has been a huge increase in specialist lenders acting as alternatives to large mainstream banks in the last ten years. Here we look at why.
Offering products that include bridging finance, equity release, mezzanine finance and invoice finance, these lenders fill a gap in the lending market caused by mainstream bank’s reluctance to provide loans for many sectors. This has particularly become the case since the financial crisis and recession of 2007. The banks were accused of lending too freely and reacted by tightening their lending rules. This meant individuals and businesses sought alternative lending sources.
An example of such rapid growth is the bridging finance sector, which is worth £7 billion in 2018 compared to £1 billion in 2011.
Specialist lenders tend to be more flexible than large banks. They look at lending applications on a case by case basis rather than use tick-box forms to assess loans. Large banks do not like to lend to businesses or individuals with a poor credit history. Bridging lenders are more concerned with the value of the assets secured against the loan, and the exit strategy for when and how the loan will be repaid. If these factors are good, lenders are prepared to provide loans for people who do not have a great credit record.
Alternative banks can often provide loans at lower interest rates than mainstream banks. They have a wide choice of products, especially for complex and non-standard deals. A broker has access to a wide range of finance options and can advise their clients on the best alternative lending deals.