ThinCats, the leading fintech lender to mid-sized SMEs, has today published new research highlighting a growing lending divide as younger, modern businesses move away from traditional lenders towards alternative finance providers.
For businesses less than ten years old, 32% call on their bank as the lender of first choice compared to seven-in-ten (71%) businesses over 35 years old. The younger businesses were also more likely to pick an alternative finance platform with more than one-in-five (23%) compared to 4% of the oldest SMEs.
Likewise, in businesses where decision makers were aged under 35, two-thirds (65%) said a traditional bank was not their first port of call for funding. This is in contrast to businesses with decision makers aged 55 and over, where it was just under one-third (30%). For these groups (under 35 decision makers) 22% said they would choose an alternative finance platform, while only 6% (over 55) said they would consider the option.
Sectors such as IT, telecoms and marketing, which are traditionally knowledge or service-based are those leading the way in moving towards alternative finance providers.
Traditionally, high-street bank lending focuses on asset-backed financing that requires SMEs to provide a physical asset (such as equipment or property) as collateral for a bank loan. Yet, for thousands of service-based companies with few tangible assets, traditional banking credit models often overlook the wider value of a business including the cash being generated.
The research, which surveyed 512 UK SMEs with between 10 and 249 employees, also shows 30% of SMEs who were rejected by their first-choice lender, stopped searching for external funding altogether. This suggests that many businesses, of whom 55% said high street banks were the first lender approached, are potentially giving up when there are suitable alternatives available.
Positively, appetite for lending remains high with more than a quarter of businesses (27%) saying they applied for funding within the last year.