Over the past 18 months, advisers and brokers have started to place more and more faith in alternative finance. Finding the right lender for the right project, no matter your sector, is key, and products such as peer-to-peer (P2P) lending and crowdfunding are starting to become more trusted as a result. Alternative finance is now dominating across sectors, and data from IRESS suggests that now ‘80% of all mortgages are sold through brokers’.
In the early days of the Covid-19 pandemic in the UK, most traditional commercial lenders switched in no small part to the Coronavirus Business Interruption Loan Scheme (CBILS). This meant the pool of lenders offering non-CBILS finance shrunk almost overnight.
The amount of business CBILS represented was staggering, and many traditional lenders consequently felt it was unnecessary to offer products which they had relied on just months ago.
In their place, for businesses and projects which required non-CBILS loans, this meant there was a gap, which alternative finance stepped in to fill. Generally smaller, more agile, flexible, and data-driven, alternative lenders became more and more trusted by brokers in the absence of traditional providers.
Thanks to their size and agility, alternative lenders generally have a more “manual” approach to due diligence, meaning fewer blanket, automated rejections for projects that need funding. In addition, their smaller teams and use of alternative platforms often means they can offer a faster service that is generally more tailored to each customer’s individual requirements.
In contrast, larger, traditional lenders’ complex organizational composition and often-bloated management structure mean they are often slower than alternative lenders can be. As alternative lenders are generally faster, more accessible, and better-equipped to offer bespoke finance solutions, they have naturally stepped into this space to meet the demand from brokers and their customers.
Alternative finance has also proved particularly popular with younger businesses. In 2019, a survey of over 500 UK SMEs about their experiences seeking funding, revealed that younger businesses were more likely to approach alternative finance than their banks. Just one-third of younger businesses (under 10 years old), approached their banks first, in comparison to two-thirds of older businesses (between 10-20 years), who went to their banks first.
However, despite the fact that this has occurred during the pandemic, it raises a key question: what will happen going forward?
The deadline for CBILS applications was March 31st, meaning that it has now been just over a month since the return to what some might call the “traditional system”. But the lending landscape is arguably different now; alternative lenders and smaller, more agile fintech companies have stepped up to the plate and it seems like they’re not going anywhere.
And that’s not all; a 2020 survey by the British Business Bank – published in March 2021 – revealed that 86% of SMEs were aware of at least one of six types of alternative finance, with net increases across five of these six categories in the five years since 2016. This shows that while alternative finance might have played a unique role during the pandemic, awareness has nonetheless been increasing steadily over time.
Ultimately, it looks as if alternative lenders’ agility, efficiency, accessibility, and technological superiority supported them to cater to gaps in the pandemic market created by CBILS.
But this penetration has helped them build stronger relationships with advisers and brokers looking to get their clients the best possible deal – meaning they’ll be in a stronger position than ever as the market adapts to the post-pandemic lending landscape.
To get in touch with a host of alternative finance providers, including the likes of Nucleus, iwoca and Ultimate Finance, contact us at Funding Bay.
