Finance 21 August 2015

Why challenger banks are leading the way in making the UK a better place to do business

Hampshire Trust Bank CEO Mark Sismey-Durrant
Hampshire Trust Bank CEO Mark Sismey-Durrant

Mark Sismey-Durrant, CEO?of specialist challenger bank Hampshire Trust Bank, discusses how the surge in alternative finance is spearheading a financial revolution that is transforming the way small businesses?access the finance and capital required to grow their businesses.

The recent upwards revision to Britain?s growth rate is welcome news to businesses and consumers alike. However the much anticipated economic improvement will be largely dependent on the success of the estimated 5.2 million small businesses that represent almost 50 per cent of the economy and almost half of all private sector turnover.?Labelled the “lifeblood” of the UK economy, smaller and medium-sized firms rely heavily on access to finance and capital to fund growth; ever more significant given the impact of years of market concentration, dwindling domestic competition and a time when business borrowing dried up as banks reigned in their lending.

Good things come in small packages

A recent study by the Enterprise Research Centre?revealed finance to be the biggest barrier to growth for around a quarter of all businesses, with this rising to two out of five businesses in some rural areas.

For too long, the financial services market has been dominated by larger lenders who between them have controlled the majority of the personal current account market and small business banking sector.

Having worked in the banking sector for many years, I know that when times get tough, mainstream lenders usually reduce their appetite for risk. This, in part, has contributed to a shift in the UK lending landscape and has led to the emergence of alternative forms of finance, resulting in a thriving challenger sector offering a diversification of products to service earlier-stage?businesses that have been largely neglected by bigger banks.

Indeed, regulatory and political efforts to introduce increased competition in the banking sector have paved the way for the emergence of alternative finance providers. No wonder then that, given the transformative benefits, alternative finance is fast-becoming the destination of choice for new firms?and SMEs who are increasingly seeking customisable solutions and who may have for years been plagued by access to available cash flow.

One particular area we are seeing a surge in popularity in is asset-based finance, which involves a business borrowing against the value of its inventory. This has almost doubled to a record ?88m compared to a year ago, according to the latest figures from the Asset Based Finance Association, and demonstrates the appetite among smaller companies to move away from traditional debt facilities such as loans or overdrafts ? in favour of finance tied to their business.

Not only does it make smart business sense for firms to be able to recognise the value of their assets and maximise them, this process is complemented by the speed at which asset-based finance facilities can be agreed or extended, making them an ideal way for businesses to respond quickly to growth opportunities as the economy continues to go from strength-to-strength.

Financing the future

Our own customers tell us that the ability of challenger banks to offer specific lending products and a more personalised service is an increasingly attractive proposition for them. Add to this, the ongoing barriers many businesses?still face in trying to meet the lending criteria set by larger banks, and it becomes evident that challenger banks and alternative finance providers have firmly solidified their place in the future of finance by fostering competition and improving choice for customers.

What we continue to face is an educational challenge among early stage firms?as to the alternative finance options available to them, prevalent given that 70 per cent of SMEs seeking bank finance approach only one provider, and 90 per cent stick with the provider of their current account.

Whilst government needs big banks to succeed, the focus must be on how the banking community continues to respond to the changing requirements of its customer base; by appealing to them with more suitable propositions and diversifying their product portfolios accordingly.

Alternative finance is having a far-reaching impact and is playing a critical role in enabling startups and SMEs to realise their ambitions. It will continue to be the bedrock of UK business growth, and challenger banks are leading the way in making the UK a better place to do business.

Mark Sismey-Durrant is the CEO of Hampshire Trust Bank.

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