I wrote last week about the Government’s latest initiative – Funding for Lending – to get liquidity flowing into the wealth and jobs creating private sector. I identified small and medium enterprises (SMEs) as one of the key targets for the scheme’s intended largesse. While we wait to see what happens, there may be an opportunity knocking. Let me explain… 

Receiving surprisingly little news coverage, a recent survey reveals that 75 per cent of SMEs do not use brokers when seeking finance. Based on research carried out by an organisation called ‘Forum of Private Business’ (nope, me neither), other key findings include the following*:

• The majority of SMEs, many credit-starved, still look to their banks for advice and to provide capital and business confidence;

• But 43 per cent think  banks’ current terms and conditions are too harsh – particularly as regards security requirements;

• Nearly a quarter say they don’t know how to negotiate with banks; 

• But just 12 per cent claim an awareness of alternative sources of funding;

• 24 per cent of respondents consider alternative funding to be a temporary phenomenon against 27 per cent who do not; and

• For those seeking alternative forms of finance 69 per cent turn to their accountant, 37 per cent to their bank manager and just 24 per cent to a financial adviser.

Negative comments about alternative lenders include: credibility and trust issues, a lack of understanding about their offerings, hidden costs, stability issues, and a reluctance to borrow rather than take risks with unfamiliar credit streams.

Positive comments were fewer, but include an appreciation of alternative lenders’ greater flexibility and business empathy – both seen as favourable counters to SMEs’ general annoyance with the banks and their behaviour.

An FPB spokesman observes: “There is caution in some quarters over alternative forms of funding but … many entrepreneurs alienated by mainstream lenders are more than willing to vote with their feet and explore newer, more innovative financial services less dependent on automated risk criteria. There is an important role to be played by accountants and other financial advisers … in guiding them in the direction of funding solutions that work for their businesses.”

This suggests to me a significant and substantial business opportunity for short-term lenders and intermediaries. But to realise it, we need both to raise our profile and improve SMEs’ understanding of how we can help them. A bit of reputational polishing might also not go amiss.

We have at our disposal the whole range of contemporary marketing and communication tools, and I’m sure many of the more forward-thinking among us are already on the case. There’s a big part for our trade bodies to play too, and I’d be surprised if the FPB’s findings have slipped the notice of the NACFB’s ever-alert Adam Tyler.

This is a golden era for alternative lenders, but it won’t last forever. While waiting for the banks’ return, we have a window of opportunity of which we should be taking full advantage.

(* More information available at: www.fpb.org )