News & Resources

British SMEs need to think 'outside the box'

May 10, 2013 Simon Williams

Whenever there's a widespread economic crisis, small and medium-sized enterprises always appear to be among the most impacted.

That was the case in the United States in the wake of the Great Recession, and the SME sector is only just now recovering. In the United Kingdom, on the other hand, there have been next-to-no signs of improvement.

The Bank of England has flushed countless dollars into its Funding for Lending program with the hope that it would turn the SME sector around - so far, to no avail. Still, the BoE recently announced that it would extend the initiative at least into the start of 2015, along with adjustments that it hopes will spark some improvement.

"This is a big boost for the small and medium sized businesses that are at the heart of the British economy," said Chancellor of the Exchequer George Osborne, according to Fox Business. "This innovative extension will now do even more for small and medium sized businesses so that they can play their full part in creating new jobs."

But what if that plan fails? In nearly two years, the FLS project has hardly made any difference, so the notion that some slight adjusting will fix everything seems a bit optimistic.

Alternative lending provides the answer
Banks appear to be waiting until the recession ends before they start lending more leniently to SMEs, but the only way the economy will turn around is if smaller companies start thriving again. In other words, the vicious cycle has essentially reached a standstill.

The reality for British SMEs is that they can't afford to wait any longer.

"Small business owners have to accept that banks are being overly cautious," Larry Kline, managing director at an American business consulting firm, recently told Fox Business. He added that "because of the requirements" banks use to approve loans, very few SMEs are eligible for funding.

Fortunately for smaller companies, plenty of innovative options have emerged in the event that startups get turned down by banks or credit unions. One of the most effective is alternative short term lenders.

Some alternative financiers use Payment Reporting Builds Credit (PRBC) scoring measures, which is a far less stringent scoring method than what banks are using. That's because PRBC takes into account financial factors such as a company's ability to pay past utility bills.

In addition, these lenders tend to offer a variety of loan amounts. According to Fox Business, some internet-based companies provide funding ranging from $5,000 to $150,000.