Challenger banks have made significant strides in the banking industry in recent times. These small to medium-sized banks entered the market primarily through the fallout or disinvestment from larger banking groups. Following the 2008 financial crash, the decision was made to allow new banks into the market. Metro Bank was the first to obtain its license in 2014.
One key feature that sets challenger banks apart is their reliance on technology-based approaches, utilizing modern financial tools such as customer and lender portals, open banking, credit referencing software, and more. This reliance on technology enables challenger banks to streamline their processes through fintech and gain access to cheaper funding lines, resulting in lower lending rates. As a result, they pose direct competition to traditional high-street banking offerings.
When it comes to pricing, high street banks have the advantage of offering lower rates and charging fewer fees, which results in better Annual Percentage Rates (APRs) for their customer base. On the other hand, challenger banks are more flexible and take a “big picture” view of underwriting. They often take a stance on companies with adverse credit, large group structures, County Court Judgements (CCJs), quirky trading jurisdictions, and other factors that traditional banks may shy away from.
Furthermore, challenger banks offer more accessibility to their customers. High street banks typically require you to do your business banking through their bank before you can apply for funding through them, whereas challenger banks do not have this requirement. However, they may require security in the form of a debenture or guarantees.
If you’re considering applying for a loan, it’s essential to research the various options available to you. Challenger banks are becoming an increasingly competitive option for those looking for a flexible approach to underwriting and lower lending rates.
At Funding Bay, we work with a range of challenger banks. Get in touch with us today to learn how we can help you secure the funding you need to grow your business.
