Alternative finance companies will disrupt business finance market, says LikeMinds
On Thursday 5th May, LikeMinds held an event entitles ‘Alternative Finance – Are the banks dead to you?’
Speakers at the session revealed that alternative finance (AltFi) companies will disrupt the business finance market but businesses need more help and education in understanding the market. The challenges for AltFi firms include:
- Education – SMEs and their advisers (accountants and brokers) are often uninformed about alternative finance. Going to the banks is embedded as a default setting.
- Trust – trust is a key issue, and banks have big brands. The alternative finance market is often a more suitable route but SME owners are less familiar with the brands, so lack confidence in going to AltFi providers.
LikeMinds said there are solid reasons why informed and smart SMEs are now using alternative finance:
- Costs – as interest rates have plummeted, banks have sought to recoup costs by charging fees and these are often not transparent. More than half of business owners don’t know how much their loan facility is costing them. Verus360 quoted a company that had a £300,000 facility that had never been used, but had cost them £74,000. SMEs which use alternative finance can save thousands of pounds a year. Verus360’s facility, for example, doesn’t cost anything except the interest charged when it is used – so it increases a company’s liquidity for free.
- Accessibility – banks are too remote and inaccessible. One SME owner had to wait 45 minutes on the end of a phone to speak to a call centre that knew nothing about how his business worked.
- Added value services – AltFi can offer more than just money. Crowdfunding can be used as a marketing tool and for engaging suppliers. Verus360’s facility gives the company additional information about their financial situation that helps with planning and forecasting.
- Improved customer experience – cloud accounting and greater use of financial APIs will help businesses better understand profit and loss, and improve the customer experience.
- Millennials – younger people have a different attitude to money and expect to access information and transact online and on their mobiles. They are less likely to trust the banks and are more likely to look at alternative finance.