51% of SME Finance Provided by Specialist Lenders

16-May-2024
16-May-2024 15:05
in Commercial
by Sam Hodgson
51% of SME Finance Provided by Specialist Lenders

Recent data has revealed a shift in the SME finance landscape - we explain why

According to The National Association of Commercial Finance Brokers (NACFB), in 2023, more than half of broker-led SME lending was facilitated through challenger and specialist banks, capturing a combined market share of 51%. This trend underscores the increasing reliance of brokers and their SME clients on non-traditional banks for financial support and growth initiatives.

The NACFB's findings align with data from the British Business Bank, which also indicates a similar combined market share for challenger and specialist banks. This convergence of data from two authoritative sources highlights a robust and growing trust in these non-traditional financial institutions among brokers and SMEs.

Additionally, the report reveals that high-street lenders accounted for just under a third (29%) of the lending volume. This marks a significant departure from the previous dominance of traditional banks in the SME lending sector. Meanwhile, NACFB Members' 'own book' lending also saw a notable rise, contributing to approximately 7% of all successful transactions. This shift signals a diversifying lending landscape, offering SMEs a broader spectrum of financing options.

One of the most compelling insights from the report is that 93% of NACFB Members brokered deals with challenger banks last year. Furthermore, over a quarter (26%) of these members engaged with Community Development Financial Institutions (CDFI) despite these institutions representing a smaller fraction of the total lending value.

Although smaller in volume, this engagement with CDFIs indicates a commitment to supporting community-focused financial initiatives and underscores the varied approaches brokers are taking to meet the diverse needs of their SME clients.

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51% of SME Finance Provided by Specialist Lenders

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Why Are Specialist Lenders Dominating SME Finance?


How does SME Finance Work?


Additional Challenges


Most Common Funding Options


How to Get SME Finance

Why Are Specialist Lenders Dominating SME Finance?

Specialist lenders dominate the SME lending market due to their flexibility in offering tailored financial solutions, faster decision-making processes, and a willingness to serve niche markets that traditional banks often overlook.

Leveraging advanced technology and providing personalised customer service, these lenders can efficiently meet the unique needs of SMEs.

Additionally, the regulatory environment post-2008 has made it harder for traditional banks to lend to SMEs, creating opportunities for specialist lenders to fill the gap. Their diverse financing options, proactive risk management, and strong market perception further bolster their appeal to SMEs seeking reliable and customised financial support.

In conclusion, the NACFB's 2023 report highlights a pivotal moment in SME lending, with challenger and specialist banks leading the charge. This shift reflects changing broker and SME preferences and signifies a more dynamic and inclusive financial ecosystem. As the lending landscape continues to evolve, SMEs are better positioned than ever to access the financing they need to thrive and grow.

How Does SME Finance Work?

SME finance involves a range of financial products and services tailored to small and medium-sized enterprises' unique needs. 

Some of the most popular finance solutions for SMEs are:

SMEs can access funds through these channels to manage cash flow, invest in growth, and address operational challenges. The application process typically involves submitting financial statements, undergoing credit assessments, and sometimes providing collateral.

Repayment terms and interest rates vary based on the type of financing, the SME's creditworthiness, and the lender's policies. While traditional banks may offer lower interest rates, specialist lenders provide faster, more flexible options.

Regulatory oversight ensures fair lending practices and transparency, protecting SMEs from predatory practices and ensuring their repayability. Overall, SME finance provides essential support, enabling businesses to thrive and expand in competitive markets.

Read blog: Small Business Loans UK - 5 Things to Know

How Much Could You Borrow?

Use our business loan calculator below to see what you could borrow.

51% of SME Finance Provided by Specialist Lenders

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What Funding Challenges Can SMEs Face in 2024?

High interest rates and strict eligibility criteria can limit an SME's borrowing capabilities with some lenders.

Effective cash flow management is crucial but can be challenging during the first few years of a business, particularly for companies relying on seasonal income or long payment cycles.

You may not have built enough assets to secure larger loans if you own a growing business. This, combined with lengthy approval processes and economic uncertainty, can further hinder access to capital.

Limited access to equity financing and the burden of regulatory and compliance costs can strain financial resources and reduce a business's growth. This is where specialist finance can typically offer a much-needed solution. Every business has a unique structure and circumstances, and a specialist lender can often be more accommodating.

Furthermore, specialist finance brokers can use their relationships with lenders across the market to find a suitable deal at the best possible rates. 

51% of SME Finance Provided by Specialist Lenders

When Do SMEs Require Finance?

Businesses of any size will typically require external funding at some point. This can be through an investor, but business owners also commonly take out loans to fund growth and retain shareholder majority.

The Bank of England states that according to the 'pecking order' theory, businesses typically prioritise internal funds as the most cost-effective financing option before turning to more expensive debt and equity finance for investment.

Relying on internal funds can lessen your financial burdens in the short term, but it can also mean you'll have less working capital to fund expansion and take advantage of investment opportunities. Taking out a loan means you'll have to keep up with repayments and interest, but it can also allow your business to grow more quickly.

Furthermore, unexpected costs may crop up at one time or another, and if your business has limited working capital when this happens, an injection of external funding may be necessary. 

How To Get SME Finance

In many cases, enterprises can find it difficult to rely solely on revenue in their early days. Business finance can empower SMEs to invest in growth and seize opportunities they might not otherwise have access to.

If you're not sure where to look for business finance or how to find the best rates, we can help. At Clifton Private Finance, we have a team of business finance specialists who can get you access to the funding you need.

We offer a range of business loan solutions, from securing finance for an existing business to acquiring a business. Every business is unique, so our business finance experts provide bespoke financing solutions.

To see what we can do for you, call 0203 880 8890 or book a free consultation below.

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