ART Business Loans: What is ‘alternative’ finance?
By Dr Steve Walker, chief executive of Birmingham-based ART Business Loans
IT has become clearer over the last five years that the banks are not the only option for a business looking for financial support.
What has also emerged is a wider gap in the market between those businesses which fit the banks’ lending criteria and those which do not, but still need access to suitable finance.
The banks remain far and away the largest lenders to businesses by volume, but the bulk of their support is geared towards larger businesses within the definition ‘SME’, where ‘small’ means with up to 50 employees and ‘medium’ means with up to 250 employees.
The neediest, and most neglected by the banks, are micro businesses – with up to nine employees, early stage businesses and those businesses operating in underserved areas.
A variety of providers have entered the market to serve them. Many will not support any business under two years old – not much difference to the banks there then.
Most are truly ‘alternative’ and in competition to the banks, but some are ‘additional’ lenders who lend only after a bank has said “no” – in other words an alternative only after a bank decline. These providers often lend alongside the banks, when the banks have already lent all they can, making up a bigger ‘package’ of finance.
All the new peer lenders, crowd funders and invoice discounters will fund as ‘alternatives’ to the banks.
Community development finance institutions like ART Business Loans, which lends £10,000 to £150,000 across the West Midlands, are currently amongst the group that lend after a bank has said “no”. This group share a number of differential factors to the banks and other alternative lenders.
• A focus on people and their plans, which involves personally meeting and understand the businesses they support;
• A need to lend to achieve social and economic impact, usually the creation and preservation of jobs, as opposed to lending with a profit motive;
• A structure that recycles any surplus into more support for small businesses with no distribution to shareholders;
• A commitment to offering access to fair finance and opportunity for all businesses with a viable proposition.
This difference is important. We are driven by how much of a positive impact we can make on the local economy. Our aim is to support enterprise and ensure that viable businesses are not left without access to finance.
Our expert staff can offer advice about the most appropriate type of finance needed and signpost to additional support and finance sources.
My advice to businesses looking for finance is to shop around and be aware of all the options available to them – and if they are turned down by one provider not to give up. They may well fit the criteria for another provider.