Why an Alternative Lender is a Friend of Small Businesses in the UK

In the UK, it has been shown that the average small business would need a little more than £2,000 just to set the enterprise up. When you think about it, this amount does not seem too big. But even with this relatively small amount needed for starting a business, why is it then that many small enterprises fail to rise from the ground?

The role of the bank in helping small businesses

The truth of the matter is, despite the relatively small cost of starting up a business, many enterprises fail to succeed simply because they do not receive the financial support they need. Whilst it’s true that the cost of opening a business can be as small as £2,000, there is still the operating cost to contend with.

The problem with turning to a major bank for a loan is that banks have forgotten the role small businesses play in the community. When you apply for a bank loan, you are faced with endless questions and will not have the opportunity to explain your case to individuals who can think ‘outside the box’, but instead face a computerised system that just assesses your credit score – which ultimately leads to rejection.

What small businesses have been doing to survive

Once small enterprises have been turned down by a bank, what do they do? The usual case is for the small enterprise to try to acquire a payday loan. This extreme measure does not do the small enterprise any good, because it then has to deal with massive interest rates as well as APRs. The facts don’t lie – one out of six small enterprises in the UK has resorted to payday loans, whilst only one out of ten small businesses has been able to acquire a bank loan during their first year. And the numbers get even worse – a fifth of business owners whose businesses failed believe it was due in great part to not being able to secure a much-needed loan from a bank.

Why small businesses fail to get loans from banks

The problem with small enterprises trying to secure a bank loan is the amount of paperwork, not to mention proof of concept, such as heavily-detailed business forecasts, accounts, documents showing profit (as well as loss), among other requirements. Banks require information that a small, start-up business will have a hard time supplying, and this is why banks reject their requests for loans and end up approving loans to larger, more established businesses instead.

Small business enterprises, such as maintenance companies, construction firms, garages, solicitor firms, and the like fail to receive the financial help and assistance they need from banks, and as such, end up closing down even before they have had a chance.

Your options as a small enterprise

But despite the numbers and the facts, there is hope for small business enterprises. If you have a small business and are looking to improve your services or invest in more products and opportunities, you can acquire small business loans from alternative financial providers instead of opting to request a loan from a bank. A micro-business needs all the help it can get, and if you can receive this help from an alternative lender who can give you a loan that is actually tailored to your business needs and situation, then you will have a greater chance of success.


Author: Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to editor.webposts@gmail.com.