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Is momentum going against the traditional high street banks?

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Jonathan Prince, Senior Commercial Manager, Allica Bank Jonathan Prince - Senior Commercial Manager, Allica Bank

A recent report published by the British Business Bank found that challenger and specialist lending accounted for 55% of all debt facilities to smaller businesses in the last year, with the big five only responsible for 45% of gross lending. That's an increase of 4% from the prior year to the challenger and specialist space, begging the question - are the high street banks still what they used to be?

For generations, small business owners would approach their bank for their business finance needs and had few options of where they could turn if their bank said 'no'. The SME lending space was monopolised by the big five until new challenger banks started entering the market, largely in the wake of the global financial crisis, looking to offer an alternative to small businesses struggling to access debt. The number of challengers, and their corresponding market share, has continued to grow over the last 15 years reaching, as we now know, over half of all small business lending. But why?

During a live poll at the NACFB 2023 commercial finance expo in June, 92% of brokers said they felt that the high street banks had reduced their appetite to lend over the last 12 months. Clearly, part of the problem is that these banks are still managing the fallout of the pandemic, which saw millions of their customers take out emergency loans to stay afloat. There's also the rising economic pressures being placed on their businesses to contend with. But does it go further that the high street aren't as keen to support UK SMEs as they once were?

Challenger banks by their very nature are smaller organisations, with less legacy technology holding them back from development, and much closer links between the executive management and the 'coal face'. By virtue of being smaller, the challengers are faster to adapt, grow, and evolve their services to meet the needs of growing businesses. The high street, by comparison, is made up of huge organisations with layer upon layer of middle management between their relationship managers talking to customers, and the decision makers who can influence what support is available to those customers. They are bogged down by legacy processes and old systems, making their pace of change even slower.

The significant growth in the broker market over the last 15 years has also been crucial to the SME population, helping smaller businesses navigate the ever-changing commercial finance world and removing some of the barriers to accessing finance from all the lenders.

Let's be clear, the 45% lent by the high street banks still represents over £29bn of new lending to SMEs, which is split across just five bank's rather than the hundreds of challenger and specialist providers. A high street bank can also provide a full service to their clients, which currently few challengers are able to contend with.

For now, at least, the high street banks will continue to play a critical role in the UK SME landscape. But, as the technological gap continues to widen and the economic outlook makes SME lending ever-more complex, it certainly feels like the winds are starting to change. As this shift away from the status quo takes a hold, the broker community will be vital in helping businesses find the right alternatives.

To find out more about the products of Allica Bank, please contact the Aria FInance team on 020 3839 9998 or email info@ariafinance.co.uk


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