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Alternative lending can help more SMEs survive, succeed

May 10, 2013 Simon Williams

Forget the rising gap between small and big businesses in the United Kingdom - a recent study revealed that there's hardly any middle ground left within the small and medium-sized enterprise (SME) sector.

"In every market and economic cycle, there exist winners and losers," said Zurich Director of SME Richard Coleman, according to Real Business. "However, there now appears to be a growing and divergent turnover gap between these winners and losers."

The Zurich survey found that nearly 60 percent of respondents are confident about their companies' future outlook. Among those confident SME professionals, nearly 40 percent have achieved substantial growth over the past two years.

Conversely, nearly half of the pessimistic respondents said their firms experienced revenue losses during that same time frame.

Alternative lending can curb the gap
One of the top reasons SMEs have struggled or gone under recently is because of the decrease in available short term lending from financial institutions. For companies that are hanging by a thread, securing these loans is oftentimes their last hope of survival.

On the bright side, Coleman noted that "the green shoots of recovery [are] already emerging."

Bank lending has shown no marked improvement over the past few years, so it must be other factors that are turning the SME sector around - such as alternative short term lenders. In the United States, alternative finances have already made an enormous difference in a relatively short period of time, for reasons like:

  • The flexibility of loan amounts and what they can be used for.
  • How quickly SMEs can access them, which is vital for companies fighting to survive.
  • The increased amount of firms that are eligible.

Some alternative lenders employ Payment Reporting Builds Credit scores, which consider different financial factors like utilities accounts, as opposed to just traditional credit scores. Not surprisingly, this has opened up funding for many previously ineligible SMEs.