Since the beginning of the financial crash, business lending has been a challenge. Banks have struggled to lend to any business, let alone what is often perceived as riskier start-ups and SMEs. Yet, with SMEs making up 99.9% of private businesses and employing 60% of the UK workforce[1] – 16.1 million people – this is a dangerous situation. If these businesses cannot access necessary finance, this could have a detrimental impact on their business; they may have to let employees go, they could find themselves unable to pay suppliers or worse, this could cause their business to fold. In turn, that impacts the economy, which reduces lending, which then puts even more companies out of business and people out of jobs.

The economy needs SMEs. Consumers need SMEs.

One of the challenges is that, as Louise Brett, Head of FinTech for Deloitte put it in 2017[2], “…for almost a decade, banks have been given the ultimate mixed-message: ‘lend’ and ‘don’t lend’. Regulators want them to be less risky, but politicians don’t want to see small businesses starved of funding.”

With the increasing use of the latest risk assessment technology and automated lending decisions, SMEs have suffered. Banks are closing branches, and as a result, many companies have lost access to the experts who understand their business and can fairly assess their risk to make an informed lending decision. Traditional banks no longer have the resources to scrutinise every application in this way.

The economy needs SMEs. Consumers need SMEs.

Of course, such a labour-intensive assessment process came at a cost, excluding many businesses even when lending was more readily available. A new solution is urgently required. But it cannot be the same offering, delivered in the same way it has been for generations, through the traditional legacy systems which add time and cost.

Businesses today move quicker than ever before, and their finance options need to keep up. For a business lending solution to be cost-effective and meet the needs of even the smallest microbusiness, it needs to be built with those companies and their specific requirements at their heart.

Identifying the challenges

Last year we carried out a survey amongst those responsible for financial decisions in over 500 SMEs of all sizes. We wanted to find out about the pain points in today’s business borrowing journey.

Of our respondents, 92.5% had cause to seek finance within the past five years, and just 13.5% experienced no problems with the process. More than half (52%) of the SMEs needed finance to purchase essential equipment for the business. 35% hoped to borrow so they could buy stock and 28% needed help to expand into new markets.

The challenges these SMEs faced focused primarily around rates, fees and speed. 35% said their bank didn’t offer the best rate; 28% found the fees too high; and for 23.4% and 21.4%, respectively, the speed of facilitation of the finance and even speed of response from the bank were a problem. 18.8% found that their bank didn’t offer the length of loan they wanted, demonstrating the inflexibility of traditional banking systems.

A new generation of innovative, affordable, forward-thinking lenders, able to move quickly without legacy systems holding them back, is entering the market to meet this need, breaking down financial exclusion.

Any of these issues has the potential to exclude a company from fair and affordable access to the finance required for business prosperity or expansion. A quarter (24.6%) of the SMEs said that without additional funding they would have to let employees go. 13.3% expected that the business would not survive without access to extra finance.

Tackling the payment gap

Of course, many firms would not need a business loan if they received faster payment for goods and serviced delivered. Payment terms allow as much as three months to pass before payment is received – and the ever-present spectre of late payment can stretch that gap out even further. The seller has incurred the costs of the order – production, shipping and essential business costs such as rent and salaries – but the wait for incoming payment can be almost interminable. For small businesses, with less flexible cash flow, this could be the difference between success and failure.

But what’s the answer?

Banks have traditionally been the only viable solution for a business loan, so they are often still the SME’s go-to provider for even short-term financial help. However, slow set-up, relatively high-interest rates and expensive arrangement fees can add to the cost of borrowing and put-off many would-be borrowers. Specialist lenders can often provide a more cost-effective, and faster business loan solution. However, many apply very high-interest rates which can make repayments a significant burden for a smaller business.

Existing solutions, even those which are newer to the market, cannot provide the scale the global digital business landscape requires, at least not in an affordable or flexible form which will allow businesses of all sizes to grow, succeed and compete effectively. A new generation of innovative, affordable, forward-thinking lenders, able to move quickly without legacy systems holding them back, is entering the market to meet this need, breaking down financial exclusion. And it seems the marketplace is open to these new offerings, whether cash advances on receivables due, or longer-term business loans.

58% of respondents to our research said they would approach a non-bank for a loan, if it offered low-interest rates, and 44% would do so to achieve lower arrangement fees.

Changing the business lending landscape

58% of respondents to our research said they would approach a non-bank for a loan, if it offered low-interest rates, and 44% would do so to achieve lower arrangement fees. New solutions are designed with the customers’ needs at the centre, rather than the incumbent’s abilities and what fits within their traditional infrastructure.

A stitch in time

Financial utilities are able to support Financial Tech businesses and banks in providing their customers with the convenient, flexible and lower cost solutions businesses need in today’s market. The systems and infrastructure have opened allowing non-banks to provide innovative solutions to better serve end users. And financial utilities like Banking Circle can offer business loan solutions that help rather than hinder business success.

As a next-generation provider of mission-critical banking infrastructure – from payments to lending – Banking Circle is providing PSPs with the tools to offer their customers a unique solution to the age-old business problem, that of managing cash flow. With Banking Circle Instant Settlement, a lending decision is made instantly, online, enabling the merchant to receive payment immediately. With cash kept flowing, the business can pay its costs, reinvest, expand to new markets and geographies, and compete effectively, ensuring they can reach their global potential without being held back by slow cash flow.

Whether a company needs to pay suppliers, refurbish premises, invest in marketing or increase headcount, a quick and simple advance on payments due could make the difference. And Banking Circle Instant Settlement can provide the essential stepping stone to get the business through without the long-term repayment commitment of a business loan.

Banking Circle Instant Settlement, which can be accessed via a PSP or other FinTech gives merchants the facility of instant settlement of receivables due, without waiting for settlement cycles or invoice due dates. The advance is paid back in full once the invoice is settled or the payment processed. The seller receives their funds instantly and payment is settled by the customer or marketplace at a later date.

The full results of the Banking Circle SME study are included in the white paper, ‘The epic business loan battle: SMEs fighting for finance’, which can be downloaded at