More small businesses and companies have decided to transfer their businesses away from traditional high street banks to alternative lending options including Shawbrook and Aldermore. According to figures recently published by the Bank of England, the amount of money lent to smaller firms by the primary high street banks dropped by nearly one billion pounds in April.

UK Small Business is Fed UP

The findings are arriving despite the Federation of Small Business’ findings on increased confidence among small businesses. Apparently, firms are interested in investing as long as they can get the financial backing necessary.

John Allan, who is the primary FSB chairman, noted that an increase in competition and financial funding sources would be good for small firms, as a business model that depended on the financial support of the big five would not get most small businesses very far.

A month ago, the Co Operative Bank put out a memo that its new business lending would cease. This came after the bank admitted to be one billion in debt, financially speaking, after Moody’s, a credit rating agency, gave it a lower credit rating.

Similarly, Lloyds TSB as well as Royal Bank of Scotland announced last year that they would provide less money to individuals and firms. As a result, even though the newer banks have not gathered more than 15 per cent of the market with small banks, they have begun to take on an increasingly important role in the financial small business sector.

A good example involves Shawbrook, one of the growing numbers of independent banks formed in the last two years. Shawbrook reports its small business customer base continues to grow, with a varied composition of hotels, retail and office environments, and pubs.

Just last year, it showed a nearly 440 per cent increase to more than 200 million pounds. In general, it has about 1 billion in lending, with three fourths going to small businesses.

The chief executive of Shawbrook, Ian Henderson, noted that there is a growing amount of resentment and frustration turned toward big banks due to their behaviour, and an increasing number of firms have begun to realise that there are indeed options out there for their business.

More businesses are choosing to come to them, particularly those who had been working with a previous bank until that bank decided not to continue to fund their effort to stay afloat in today’s competitive business environment.

While it is true that public sector businesses have seen their share of struggles, the manual underwriting provided by Shawbrook in conjunction with their near absence of toxic debt makes it easier for them to work with the good and solid businesses out there that deserve funding to help them get of the ground.

Similarly, Aldermore Bank was created half a decade ago in order to make it easier for individuals and small businesses to get ahead. At this point, it has more than 2.5 billion pounds in lendings and is home to more than 15,000 small business clients.

Phillip Monks, its chief executive, states that as foreign mega banks like ING have taken their leave from the banking market in the United Kingdom, challengers have seen opportunities to expand their roles on the playing field.

According to Monks, there is a need for banks that can provide high quality services. This is not just a factor of supply and demand, he notes, but rather a testament to the reliability and genuine quality offered by challenger banks in contrast to the poor service provided by big banks.

There are more challenger banks each year for small businesses to choose from, and the numbers are expected to grow in 2014.


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Tim Capper

Bringing you financial news and information in plain english for Maple Leaf Financial. My aim is to help readers understand these often complex financial instruments.