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SME borrowing rising as challenger banks’ profits soar

SME borrowing is rising and alternative finance is a driving force behind this growth according to the latest financial reports from challenger banks Shawbrook and Virgin Money, and the new SME Finance Monitor from BDRC Continental.

Challenger bank Shawbrook has identified a rise in small business lending as the primary factor behind a 63% hike in pre-tax profits for 2015. The news follows a release from Virgin Money showing a 53% leap in pre-tax profits and underlines the growing presence of challenger banks in the small business finance sector and the importance of alternative finance. Challenger banks emerged in the wake of financial crisis to fill the gap in funding, both business and domestic, left by traditional lenders. Alternative finance services, including invoice finance, peer-to-peer lending and crowdfunding, are a prominent part of their offer.

At the same time as these challenger banks have been demonstrating just how much the business lending landscape has changed in recent years, information from the latest SME Finance Monitor has identified a rise in the use of finance services, loans and overdrafts as a key driver of SME borrowing growth. A quarter of companies polled are engaged with these SME finance services compared with a fifth in 2012. Notably, over 80% of loan and overdraft applications submitted in the last year and a half were approved, a record level recorded by the Monitor.

As SMEs look ahead, there are some serious headwinds to be faced, not least relating to the uncertainty surrounding the EU vote and pension auto-enrolment costs. However, alternative finance, including challenger banks, is giving these companies the power to push back and has a major role to play in maintaining SME sector development.

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