Should Banks Make Alternative Finance Their Own?

Should Banks Make Alternative Finance Their Own?

Small business is flourishing in the UK, with the latest government statistics revealing that this year the nation was home to 5.4 million SMEs, which account for 99% of all business. But for once, it’s not banks that are powering the economic revival. In search of alternatives that champion flexibility and transparency, alternative finance has emerged as an exciting new way for British SMEs to get off the ground, and into the top 10%.

Alt-finance explained

Now popularised enough to win its own moniker, the alternative finance industry has re-imagined the way small businesses secure funds. Options are flexible, and designed to fit the unique needs of businesses. Select invoice finance is one of the most beguiling new models, with providers like Global Asset Finance and its partners offering SMEs smart cashflow finance, designed to stimulate growth, not hinder it.

Crowdfunding is another popular option, as are alt-finance solutions like short term loans, bridging loans and term debt.

Are banks on board?

To date, alternative finance has emerged as a fierce competitor for banks. But what if the two could coexist, and offer SMEs an even better service?

This is a concept that some big name banks are already starting to toy with, with Santander blazing a trail in the alt-finance department. This October, the British arm launched the exciting new £200,000 Change maker Fund in conjunction with equity crowdfunding platform Crowdfunder

The new partnership will see the fund used to invest in small businesses, with a focus on funding community projects, charities, and businesses underpinned by social change goals.

So how do banks stand to benefit from collaboration with Alt-Finance providers? Or at an even more progressive level, the launch of in-house alt-finance solutions? Put simply, banks are on the verge of losing out to a better product. In the same way that Airbnb disrupted the hotel industry and Uber shook up the taxi scene, alternative finance offers entrepreneurs better solutions. And SME owners are starting to smarten up, with the latest statistics confirming that the industry is experiencing unprecedented growth. Yes, there’s still a place for traditional finance. But put simply, if banks fail to get on board the alt-finance revolution, they’ll be selling themselves, and their customers short.

A two-way street

That said, the relationship is reciprocal and it would be bias to assert that the alternative finance doesn’t have anything to learn from banks. On the contrary, there’s plenty of insight to be gained, with experts maintaining that alt-finance lenders should pay close attention to the immense success of the orthodox banking model as they move from the side-lines to take centre stage with traditional lenders.

Which leads us back to the concept of collaboration. Together, banks and alt-finance lenders could create opportunities for SMEs that go far beyond the capabilities of each individual lender. Whether Santander’s exciting new alt-finance concept is embraced by other banks?

We’ll have to wait it out and see.

Categories: Invoice Finance Services