The latest edition of ScotPac’s bi-annual SME Growth Index Report revealed that the share of SMEs planning to partner with a non-bank lender for new investment in the next six months has increased to a record high of 54 per cent, up from 47 per cent 12 months ago.
By contrast, only 35 per cent of SMEs said they intend to source new investment funding from their main relationship bank or a peer, down from 47 per cent in the corresponding period last year.
Leading the bank exodus are SMEs in a business growth phase, which account for 40 per cent of the national market, with more than four in every five businesses in this category looking for alternative lending solutions and over half intending to source non-bank lending to support new investments.
Interestingly, 94 per cent intend to use their own funds as part of the capital mix to underwrite new investment, despite the proliferation of available lending solutions. Overall, a third of SMEs intend to raise new equity, a threefold increase since the start of the SME Growth Index in 2014.
ScotPac CEO Jon Sutton said the headline figures spell out just how much business finance has evolved over the past decade.
“The days of cumbersome, one-size-fits-all SME financing are gone, replaced by a growing demand for more flexible options that are faster and more accessible,” Sutton said. “SME owners and operators are increasingly becoming aware of the benefits of non-bank lending, which often include alternatives to borrowing against the family home. That has motivated them to talk to their brokers and look beyond traditional funding arrangements.”
Sutton added that despite record increases in SME non-bank lending, key signs point to further rises in coming years.
“First, demand from SMEs for fresh working capital is on the rise as SMEs operate in an environment of rising costs and uncertain demand,” Sutton explained. “Second, there remains a large, untapped market of SMEs who are self-funding business investment.
And third, Sutton said, “Awareness of the speed and ease of non-bank lending products continues to grow through a combination of networking, technology and broker activity.”
Sutton also noted that the current environment played to the strengths of brokers in helping their clients navigate a crowded lending market to find the right solution.