Look beyond the usual big banks when it comes to funding your firm
David Prosser Business columnist
Britain’s small companies are finally beginning to borrow again. Data from UK Finance, a trade association for the banking and financial sector, shows that banks lent £3.5bn to small and medium-sized enterprises (SMEs) during the fourth quarter of 2023, the first quarterly increase for more than a year. But while the pickup suggests small businesses’ confidence may be returning – and that banks are becoming more willing to lend – it is important to recognise that the banking sector is no longer the only source of finance.
Bank loans and overdrafts have traditionally been the mainstay of financing for small businesses, with many firms looking no further than the bank where they hold their current account when seeking to raise money. This type of finance will remain important, but it isn’t always the best option. Loans and overdrafts aren’t particularly flexible, and they are often expensive.
Taking on the big banks
At the very least, firms need to shop around for finance. New entrants to the small business banking market – the likes of Aldermore, OakNorth, Starling and Tide, among others – increasingly provide valuable competition to the big five banks that were once responsible for more than 90% of small-business lending.
Nor is price the only consideration. Look for simplicity and convenience too. Lenders such as Funding Circle and Iwoca now offer small businesses quick-decision loans of up to £500,000, promising to complete advances within a couple of days. This is forcing the big banks to respond – NatWest, for example, recently launched a same-day approval service for its own customers.
More broadly, though, consider other types of finance as well as a loan or overdraft. These may be better suited to the financial profile of your business, or more appropriate for your borrowing objectives. Invoice finance is a good example, particularly for businesses that run large books of receivables. The idea is to enable small businesses to access the value of their invoices upfront, rather than having to wait for them to be settled. The money is advanced from the invoice-finance provider, with the loan repaid once your customer pays its bill.
This can be a flexible way to arrange fina
