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Rise of alternative SME finance easing pressure on banks?

While the increase in the UK trade deficit and a focus on SME export sector performance has once again raised questions about the availability of small business finance, there is a sense that the banks are coming in for less flak thanks to the continued growth of the alternative SME lending industry.
The increase in the UK trade deficit in goods and services for February to £3.4 billion has put the spotlight back on the country’s export sector and, in particular, SMEs operating in that realm and the level of small business finance that they can access. The British Chambers of Commerce has responded by calling on the government to increase its investment in business, including by giving SMEs more support in key areas such as SME finance.
“Better access to SME finance” is a call that has been heard regularly in recent years, and one that has been aimed, whether directly or indirectly, at mainstream lenders. However, in recent weeks, it is arguably the case that there has been some easing of pressure on this group, with a number of business organisations, to differing degrees, showing some sympathy to banks. What is causing this softening? Well, the growth of the alternative SME finance sector, offering products such as invoice discounting and asset finance, has certainly played a role.
New data from the Finance and Leasing Association show that demand for asset finance among SMEs is continuing to grow, a trend it interprets as demonstrating growing confidence among the small business community with regard to investment. According to the association, February was another strong month, with businesses turning to asset finance to fund investment in new and replacement business equipment. Plant and machinery, IT equipment and commercial vehicles finance were the most popular formats.
How should we interpret any easing of pressure on banks regarding SME finance? This sector still needs to improve its small business lending and this may be easier to achieve as the alternative SME finance sector continues to play such a central role.
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