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Small firms call for access to alternate lending sources

Daniel Liberto

As the government prepared to close its open consultation process on whether legislative changes should be taken to change how SMEs are financed, the poll revealed that many small businesses want more access to alternative lenders, and better education on what they offer.

Out of 541 SMEs interviewed from 15 to 17 April, 65 per cent said they wanted legislation that required banks to refer rejected applicants to alternative lenders, with only 7 per cent not in favour of such a move.

Despite this call for more finance options, the survey revealed that most knew relatively little about alternative lenders. Only 3 per cent of respondents said they had an excellent understanding of alternative finance lenders, while half claimed to have a limited knowledge of how they functioned.

Max Chmyshuk, founder and managing partner at Fleximize, said: “It is ridiculous that so many SMEs have their applications for credit rejected by the big banks, because many of them are financially viable, growing businesses that do not pose a high risk of default.

“They are sometimes unable to persuade the big banks to lend to them, because the banks use lending criteria designed for the last century.”

Mr Chmyshuk added that new technology had made alternative lenders “smarter” than banks when assessing applications for business credit.

According to Fleximize, about £787m of business loan applications were rejected during the third quarter of 2013, with 22 per cent of rejections going to small businesses and 9 per cent to medium-sized enterprises.

Adviser comment:

Paul Richardson, managing director for Surrey-based Concept Financial Planning, said: “I agree, but it is getting the SME to understand that alternative does not always mean risky. Why do the banks have to be the first stop and why should they refer them? Education is key.”