A lot changed in the aftermath of the financial crisis of 2008 and over the course of the recession we are only now beginning to leave behind. There are no doubt any number legacies from what was an unusually testing time for the UK and global economies but one will certainly be the rise to prominence of new forms of SME financing. In this post we look at the future of the small business funding market.
Here are 4 predictions on how the market will continue to develop.
1 – Specialist lending will become the norm
The reality of traditional lending scenarios for small businesses is that directors and entrepreneurs generally find themselves talking to or dealing with individuals who know little or nothing about their field of operations. A one-size-fits-all approach is fine when banks are willing to lend but when they become habitually risk-averse, it becomes a problem for companies that desperately need finance to grow and develop their ideas.
In future, there will be a larger number of smaller lenders with individual organisations able to specialise in providing financial options to companies within particular sectors. This trend is already emerging in the UK and elsewhere and it only looks set to continue.
2 – Everything will happen faster
Until recently, mainstream lenders have only really faced competition for small business custom from organisations of a similar size and scale to themselves. Newer alternative lenders are helping to make the market much more agile and innovative, with speed and simplicity proving to be a key differentiator between rival service providers.
In the 21st century, customers in virtually every context demand that services be delivered quickly and that systems operate seamlessly. The often painfully sluggish nature of applying for loans or credit through traditional banking mechanisms are and will continue to be superseded by speedier and more responsive alternatives.
3 – Online options will lead the way
The importance of a personal touch cannot be overlooked in any business context and particularly when it comes to reaching agreements on crucial financing deals. But the days when visiting your friendly bank manager made a difference to whether or not your small company could secure funding are gone and they don’t look likely to return.
Contemporary business bosses, for the most part, are familiar and comfortable with taking advantage of opportunities that emerge online and the medium offers some very notable benefits in terms of speed and simplicity. In future, alternative funding opportunities will be assessed by small businesses on their merits and less on perceptions of familiarity or proximity.
4 – Crowdfunding will be part of a much broader picture
One alternative funding option that has emerged rapidly in recent years is crowdfunding, whereby large numbers of people buy small amounts of equity in a company that appears to be going places. The concept and the mechanisms involved have worked spectacularly well for some small businesses and the success stories demonstrate the potential of the crowdfunding model.
However, in my view, crowdfunding will eventually settle in to become a relatively niche element of a much broader picture that is a vibrant and multi-faceted global marketplace for alternative small business funding options.
Conrad Ford is Managing Director of Funding Options, a team of award-winning enterprise finance experts who help businesses find the loans they need.