Alternative lenders outpace Business Bank

Alice Murray
31 July 2013

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The UK governmentтs Business Bank has dished out only ТЃ300m in SME loans since inception, compared with ТЃ345m provided by alternative lenders in short-term secured loans.

According to lender West One Loans, the Business Bank will not be able to keep pace with alternative sources of finance.

The Business Bank was set up in September 2012 following Tim Breedon's report on non-bank finance. It aims to attract private sector funding and expects to support up to £10bn of business lending when fully operational.

However, so far, only £300m has been lent to SMEs, where alternative lenders have lent £354m over the same period. According to West One Loans, even if the entirety of initial funds from the Business Bank are lent to SMEs in a single quarter, lending by alternative sources will still outpace the government initiative by 58%, or a further £173m by October 2013.

"Government aspirations to lend to small businesses are noble, but could be misguided. In the longer term, the Business Bank could be doomed to failure just by a lack of firepower. And right now it's already proving unwieldy. Just as the biggest corporate lenders are seeing their market share slip away, the Business Bank is being outmanoeuvred by nimbler players," says Duncan Kreeger, director of West One Loans.

West One's survey of brokers found that intermediaries expect a 36% annual growth in total gross bridging lending.

In the first quarter of this year, the bridging loan industry provided £1.61bn in lending. Business loans made up just over 21% of the bridging market, with property-related loans accounting for the remainder.

As bridging facilities become more available, rates are expected to decrease. West One's survey found that 57% of intermediaries expect borrowing costs to fall.

It is important to note that the Business Bank also provides long-term capital to UK SMEs through banks and financial institutions. It does not intend to compete, displace or subsidise banks. Instead its role is to encourage the development of private sector solutions and create a more diverse lending landscape.