Businesses continue to turn their back on banks

London’s small businesses are abandoning traditional bank funding and embracing alternative finance, research finds.

While bank lending to the capital’s small and medium-sized enterprises (SMEs) has plummeted 40 per cent in the space of just a year, companies based in London raised an estimated £350 million through peer-to-peer lending in 2015.

Figures released by the British Bankers’ Association show that the value of all newly approved loans and overdrafts to London SMEs in Q3 of 2015 was down 40 per cent on 2014 totals, from £1.7 billion to just over £1 billion. 

The average London SME has now less than £20,000 borrowed from their bank – a record low. In 2011 the average London business had £28,000 borrowed from their bank.  

Roz O’Brien, director of Pixel Projects, a technology business born and based in London says, ‘Working with banks can be a slower, cumbersome process; and that doesn’t always suit our business model.

‘The tech sector works quickly and efficiently, it’s a fast-paced environment; and our funding setup needs to reflect that. We can’t wait on a banks’ response to a funding application.’

Pixel Projects has raised more than £9 million worth of project funding through a peer-to-peer lender. ‘It’s helped our business grow faster than we otherwise could have; we get funds quickly, as they’re needed,’ O’Brien says. 

It feels only natural for us to embrace new technologies in how we finance our business. It’s clear that the world of finance is changing, and tech companies like us should be the first to embrace this change.’

Anil Stocker, CEO co-founder of online lender MarketInvoice adds, ‘Banks have grown increasingly reluctant to lend to SMEs, who see business lending as high risk, low return practise. Approvals for loans and overdrafts have been hard to come by, despite direct government incentives such as the Funding for Lending Scheme.

‘At the same time the city’s businesses have recognised peer-to-peer lending as a better, more efficient way of financing their growth. We’re supporting a lot of the fastest growing companies in the capital; dependable cash flow is rocket fuel for these businesses.’

Further reading on business funding

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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