A case against fast finance: why the relationship with your finance provider matters

When it comes to finding funding, small businesses should consider how well their finance partner knows their unique needs, rather than going for the quickest route

A case against fast finance: why the relationship with your finance provider matters

The funding landscape affecting small and medium-sized businesses has undergone some interesting shifts recently. While banks have become more conservative with their lending, there’s also been an upsurge in alternative finance options such as peer-to-peer lending and crowdfunding platforms. But are small businesses taking full advantage of all the options available to them?

Armed with a proposition, the majority of small businesses opt to go to the banks first in the  hope of securing funding. According to the British Business Bank’s 2015/2016 report, over half of UK smaller businesses immediately go to their main bank when they first identify a financing need rather than shopping around for finance.

Unfortunately, success is by no means guaranteed – especially since banks have adjusted their risk appetite over the last few years. But with so many other funding options available now, rejection from a bank doesn’t need to spell the end of the road anymore. That being said, many businesses seem to be hesitant to spend more time assessing the financial options on the table.

As well as a reluctance by banks to fund small businesses, there’s also been a sharp change in the day-to-day relationship between banks and their clients. With continuing pressure to reduce costs – which often means staff reductions – many banks communicate with small businesses via their business support teams over the phone or through a live chat online. The rise in digital communications has changed the relationship between businesses and banks, and the intimate relationship that used to exist is now sadly rare.

Turned away by their bank, many businesses feel they have no choice but to apply for online loans. And while this approach may work out for some, there are other routes. The problem is that these options are often overshadowed by flashy ads telling people to “apply in minutes” that promise quick decisions. But what chance does the business owner or management team have to really set out their plans or demonstrate their understanding of the opportunities – or the threats?

The decision on both sides is simply driven by numbers and data. However, the numbers can look worse if a business is starting up or on the cusp of growth. That’s why establishing a relationship between a business and its finance partner is important. Getting the full story requires a conversation and open communication. It’s vitally important that a business trusts its source of finance, and the only way that level of trust can be built up is via a strong relationship. Generic or one-size-fits-all solutions just won’t work here because no two businesses are the same. So as small businesses shop around for funding, they should look beyond how much money the other party is willing to put on the table.

The good news is that there are many new funders looking to step forward to fill the gap left by banks. It’s now up to small businesses to cast the net wider and also to weigh up what a funding partner is offering against what their business really needs. Many businesses opt for the quickest and simplest route, and this is where they can become frustrated.

The cheapest deal may come through a simple application process online, but without taking some time to look at other options you might miss out on the best deal. Some funding sources, such as bank loans or crowdfunding platforms, are very visible. But there are others worth exploring that perhaps receive less attention. Government lending schemes in collaboration with local enterprise partnerships or wider schemes funded by the British Business Bank are often tailored to the business’ stage of development and can adapt as the business grows and prospers.

Crucially, the relationship aspect plays a key role throughout the process. Both parties identify future opportunities or potential risks and work through challenging times together. Support builds trust, which in turn strengthens the relationship. So while data and technology may have encroached on some relationships, they’re still going strong if you know where to look.

This article comes courtesy of The FSE Group, an organisation that provides tailored funding solutions to ambitious social enterprises or small and medium-sized enterprises.


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