New lending standards a 'win-win' for lenders and businesses

As the number of new businesses launching in the UK soars, so too could demand for commercial finance.

With potentially thousands of SMEs lining up to secure funds necessary for expansion or consolidation, new lending standards have now been introduced to ensure the safety of those borrowing money.

The new Standards of Lending Practice will replace the existing Lending Code, bringing enhanced protections for a wider range of businesses.

In addition to extending coverage from micro-enterprise customers to include businesses with a turnover of up to £6.5m, the standards will also give firms greater insight into lenders’ decision-making process.

“Small businesses will now have the right to understand why a lender has declined their application, enabling them to review their existing business models and requirements going forward,” explained Craig Farmer, chief risk officer at SME finance provider Fleximize.

“In this respect, lenders will be able to provide a greater level of support to the SME market by sharing vital information, even when lending requests are declined.

“In that sense, it’s a win-win for both lenders and businesses.”

Recent evidence suggests the new standards could not have been more timely, with 19% of SMEs having missed out on at least one new business opportunity in the past 12 months due to a lack of available finance.

This situation may be set to deteriorate, with the number of new SMEs entering the market having risen 17% since 2010.

Chris Treadwell, head of commercial finance at Enness Private Clients, hoped the new standards would help businesses to feel more comfortable when considering different funding options.

“Larger businesses who have been through the process before may be familiar with their options and know what to expect, but for smaller companies, starting out in their business venture, this is a positive step.

“Any transparency in terms of product range, application process and reasons for a mortgage being declined are all key drivers of building trust within the industry.

“It also helps a borrower make an informed decision from the outset – hopefully removing the risk of being disappointed further down the line.”

Earlier this year, seven lenders joined forces to launch the Association of Alternative Business Finance (AABF) in a bid to promote transparency, responsibility, fairness and security in the sector.

Soon after, the founding members were joined by an additional three lenders, who were also keen to ensure business clients received the highest levels of service.


John Davies
John Davies, chairman of the AABF

John Davies, CEO of the Just Loans Group and chairman of the AABF, welcomed the new standards.

"Increasing confidence and promoting the best standards of industry practice drove the creation of the Association of Alternative Business Finance and key to this is the core operating principles that members adhere to.

"These principles and the commitments that underpin them were drawn from the existing Lending Code and we are now reviewing [them to see] if these can be strengthened even further in line with the new standards that have been announced."

Joel Perlman, co-founder of OakNorth Bank, suggested that although more lenders could now be held accountable under the new standards, for others the change may be minimal.

“From our perspective, it makes little difference as we have always taken a very personal and bespoke approach to lending.

“We don’t rely on credit scores or computers to make our decisions, but will look at everything the business has to offer – the business plan, cash flow, management team and what collateral can be offered as security.”

Regardless, Craig believed the impact on businesses could be dramatic.

“Small businesses have been operating in a difficult economic environment since 2008, and are now facing a myriad of challenges, including Brexit and punitive business rate rises.

“These new standards will encourage lenders to have a better understanding of businesses – including their goals and aspirations – and facilitate greater transparency in the lending process.

“They should also prevent the mis-selling of products that we’ve seen in the last few decades, and which has blighted small businesses.”

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