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British banks acting more like short term lenders

Jun 10, 2013 Simon Williams

In the past few years, people in the United Kingdom have increasingly found their options to attain loans more and more restricted. Since the recession took hold a number of years ago and the economy suffered, many people found coping with the fiscal situation difficult.

During this time, banks and traditional financial institutions largely restricted their lending capabilities. When they did dole out loans, these organizations almost only lent out to people who were sure things. Subprime applicants found doors closed in their face.

However, now that the economy is picking back up slowly but surely, banks are trying to take loans back into their own hands. After seeing former clients go to alternative sources for their lending needs for the past few years, British bankers are attempting to regain business.

Savings bank offering short term loans
Some of these financial institutions are going as far as to offer their own brand of short term loans to present competition to alternative lenders. Many hope that banks' reputations will trump those of nontraditional companies.

According to The Mirror, Airdrie Savings Bank recently began offering customers Express Loans with a 27 percent interest rate that can be repaid within six months.

"We're providing customers with an alternative way to access short term funds without hefty repayment charges," Rod Ashley, head of Airdrie Bank told The Mirror.

Same goes for business loans
British banks are starting to free up funds to loan to small and medium enterprise (SME) owners as well. However, many financial experts in the U.K. are saying that this is not an optimal situation, as a large portion of SME owners are just relying on short term loan options from five banks.

The Telegraph reported that after denying loans to smaller companies for years, many financial institutions are trying to reclaim that market as well. Five high street banks have come out on top, though some industry veterans are saying that this is still too closed of an industry. There's not a lot of competition.

The news outlet said that there are plenty of other options that perhaps owners don't know about or simply haven't considered. Asset-based lending, online credit lenders and private businesses selling equity are all valid options, the source detailed.

SME leaders should be aware that they actually have many more choices than simply restricting themselves to short term bank loans.

Alternative options
Even if banks do start offering short term loans with more frequency to U.K. consumers, that doesn't mean they won't shore up efforts again if the economy takes a plunge. This would also be the case if a subprime lender were to apply for funding. This means that the people who are most in need wouldn't be able to tap into helpful cash stores.

However, individuals with less than optimal credit scores still have somewhere they can turn - alternative lenders. These companies have more liberty to create their own, unique approval process, where as banks, even those acting as short term lenders, still have to abide by corporate rules. Alternative sources, on the other hand, usually rely on nontraditional methods.

For instance, many of these companies take into account other types of credit scores. A growing trend is to rely on the Payment Reporting Builds Credit (PRBC) score. This ranking system gives people a unique score depending on their history of paying off utilities accounts in a timely manner, among other economic factors. This tends to provide a richer picture of the individual's fiscal profile, which can allow those with low scores to qualify for loans while still averting risk for the lender.