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Alternative lenders 'cut cost of small business lending below banks'

by Andy Davis

The price that non-bank lenders are charging for short-term, unsecured small business loans has fallen over below the rates they are typically being charged by banks, according to figures published by the online loan matchmaker Funding Xchange.

In a sign that alternative lenders are competing hard in a market where demand for debt finance is muted, Funding Xchange found that in October 2019, 60% of smaller companies with a good credit profile were able to access borrowing at a total cost of below 9.5% per annum.

It says the percentage of SMEs able to access the lowest unsecured borrowing rates has more than doubled since March 2019, and the interest rates on offer have now dropped below the typical 9.9% representative APR offered on an equivalent loan by mainstream banks.

The findings were on small businesses applying for an unsecured term loan of 18-24 months.

However, Katrin Herrling, co-founder of Funding Xchange, which tracks lending by 40 specialist SME funders, warned that fees charged by brokers and online intermediaries could still increase the overall cost of non-bank funding for small business borrowers significantly.

However, the company's findings are also likely to prompt concerns about lending standards among non-bank lenders. It suggested that many of the companies able to access these highly competitive rates from non-bank providers have credit histories that would normally lead a bank to reject their application to borrow.

Funding Xchange is an online service that allows small businesses to search a panel of specialist lenders, including banks and non-banks, before applying to borrow. It is one of three government-designated platforms to which unsuccessful applicants for bank funding are directed through the Bank Referral Scheme.

Andy Davis is an author for accountingcpd. To see his courses, click here.

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