Business lending is a very complex aspect of today’s commercial world, which has only been made more complex by the harsh economic conditions. For that reason, many people have turned to alternative financing options. My name is Jeremy Powers and this post is about these very options and how they compare to the state of business lending.
Generally, I can say with certainty that business lending is going to experience slow, but steady growth. While the economy might still be recovering from the Great Recession, we can see the light at the end of the tunnel perhaps for the first time in years, and the relationship between the financial and the corporate sectors is no exception. This is largely due to increases in consumer spending – corporations have more revenue and financial institutions are less wary about companies not being able to repay loans. This is great news for small businesses.
That’s not to say, however, that SMEs should relax and count on banks granting them loans by default. Improved economy conditions don’t mean that companies shouldn’t be careful and take account of each incoming and outgoing transaction, because the only way a financial institution can determine whether your company can repay the loan is by its performance reflected in accounting figures. Therefore, if you own a company and need money, you might be luckier than those businesses that applied for loans in 2014 and failed to be granted them, but you should still show that your company is afloat. Banks are just as vulnerable in this economy as any other business entities, and they stand to lose quite a bit of money if they lend to the wrong persons. The requirements for bank loans are as strict as ever, and not many small businesses are capable of meeting them. This is where alternative financing, such as net lending comes in. It’s adaptable, flexible and can offer short-term and long-term help to various types of small businesses.
On the Road to Recovery
Nevertheless, the world’s top financial analysts predict that lending crisis has been averted and the only way to go now is to go forward and hand-in-hand with alternative financing. The UK is seeing more and more start-ups emerge every year in response to consumer demand, and all those new companies need the money financial institutions can give them. This means more business for the banks, and while that business carries certain risks for them, the fact that the economy is on its way to full recovery can serve the start-ups well in the coming years, provided that their product is genuinely good and worthy of the loans.
When we compare consumer credits to business lending, it seems that the two are doing equally well – slow but steady recovery from the recession. However, it is important to remember that your company’s assets can sometimes be used to repay your personal loans by your creditors. If you’re granted a loan for business reasons, make sure to draft your legal documentation carefully in order to protect your personal assets from creditors in the event of company liquidation or administration. You also need to be careful when you take out loans for personal reasons, as well as business reasons – banks always take a look at your credit history in order to see whether or not you’re at risk of not repaying the loan.
The good news for small businesses is that it appears that there are going to be some new initiatives that unlock small businesses’ access to finance in response to various changes on the market. With the changing consumer demands and the increased use of technology by SMEs, banks are also responding to the changes and are diversifying their approaches. The emergence of alternative finance options is another direct response to the harsh business lending conditions. For instance, crowdfunding can work really well for a start-up with a great premise that doesn’t for some reason impress banks. I wouldn’t, however, rely on it for solving the issues that affect my business on a daily basis – if I were a business owner, I’d save the money I received via crowdfunding and either invest it or use it for some big project.
However, as I mentioned earlier, SMEs shouldn’t relax and assume that they’re going to get a bank loan, or indeed receive money from a source that’s not a traditional financial institution, based on mediocre product and performance rates – competition is tougher than ever across all the markets and you have to prove to the banks that you’re better than your competitors. Technology is your friend in this situation, but don’t rely on it too much and forget that your company’s main assets are its people.
In general, I do believe that UK’s financial institutions are going to recover within the next 2-4 years and business lending will stabilise itself after the recession. Indeed, both consumer credit and business lending seem to be doing a lot better than they were even a year ago. The fact that alternative financing options don’t seem to be going anywhere anytime soon is another sign of recovery. However, that does not mean that the trouble has completely passed – it’s important for the banks, as well as other sources of funding, to be cautious of whom they’re lending money to, just as it is important for small businesses to stay competitive in order to secure a loan that they need and make sure that they plan and budget carefully. If you’re having doubts about what you, as a small business owner can do in order to make your company more attractive to the lenders or alternative sources of financing, consider consulting a professional.