Many smaller businesses believe credit is relatively scarce. According to FSB’s most recent Small Business Index (SBI) data, 42 per cent of small business owners say credit availability is very poor (19%) or quite poor (23%). Just 24 per cent feel credit is readily available. These numbers improved between 2012 and 2016, but have weakened in the past two years.
Traditional bank lending (debt finance) has become less accessible to small firms – particularly those seeking early stage funding – with banks less likely to take on riskier propositions. However, alternatives are available for those that know where to look. For example, challenger banks have started to step into the space vacated by more established institutions. And new options, such as crowdfunding, have also provided a solution for some small businesses seeking external finance. In fact, there are a variety of alternative finance options available, such as equity finance (including angel and venture capital finance) and peer-to-peer finance. However, despite increasing awareness among smaller firms, these alternatives still exist on the margins of small business finance markets.
The reality is that most small firms fail to look beyond traditional banks (usually the bank they use in a personal capacity) when attempting to secure a loan. Large banks remain the dominant force in small business finance markets.