The rise of alternative finance


Alternative finance is thriving. Since the financial crisis, healthy small and medium-sized enterprises (SMEs) have struggled to secure business loans with main lenders. In order to try and address this funding gap, an abundance of alternative lenders have launched in the UK offering new sources of finance, including peer-to-peer lending, crowdfunding, online lending or invoice financing.

The launch of new providers

Many financial advisers and brokers have welcomed these new types of lenders as it enables them to offer their clients alternatives to traditional bank loans. But challenges remain and both intermediaries and SMEs still do not know enough about the specific offerings.

Education is therefore key and the failure of not knowing what kind of finance is available can sometimes be a more significant barrier than securing the necessary funding itself.

This is partly due to the fact that it is difficult for businesses to find objective information about the alternative financing landscape. Although most comparison websites and lenders offer a lot of detail online, businesses can find it challenging to filter out the most relevant information and understand the on occassion complicated pricing policies. That said, many lenders are constantly incorporating feedback from SMEs into their service offering in order to increase ease of use and narrow the education gap.

The UK Government, as well as independent regulatory and industry bodies, have also undertaken several efforts to improve this situation, such as producing white papers and industry guides or organising relevant events. However, more could be done to help SMEs, as well as their financial intermediaries, to access information and advice on the financing options available to them.

New finance providers vs. traditional banks

The main banks have a vast amount of knowledge and experience with managing complex processes and, over the years, have developed strong operational and compliance functions. Room for improvement mainly lies in the user experience realm and being more aligned with customer demand. That’s where alternative lenders jump in, as they are generally more able, due to a better use of new technology, to manage the changing demands and need of their clients.

Financing is tricky for everyone, and SMEs are not an exception. Many tend to use trusted intermediaries for counsel. It is therefore in the interest of commercial finance brokers and corporate finance advisers to keep up-to-date about alternative lenders and their offerings. This could be done by either reaching out to the lenders directly or by attending or organising an event on alternatives finance themselves. This ‘Trusted Adviser 2.0’ will be perceived by their clients as a differentiator from other firms and their services more likely to be used in the long term.

About Niels Turfboer

MD Niels Turfboer has over 15 years of experience in European banking and business finance, holding senior posts in multiple banks. After time at ABN AMRO, ING, he founded and grew an education business, going on to join MarketInvoice as Head of Investor Development. Today, in addition to leading the revolution in fintech with Spotcap, he is on the advisory board of Fiduciam and Alterest Investment Technologies. Niels has an MBA from IE in Madrid, with a specialisation in strategy and finance at the Leonard N Stern School of Business, New York University.

About Spotcap

Spotcap provides flexible and accessible financing to SMEs, allowing entrepreneurs to focus on what matters – their business. Spotcap develops its credit risk algorithm in-house and lend from its own balance-sheet.

You can meet Niels and the Spotcap Team at BCR’s forthcoming Alternative & Receivables Finance Forum.