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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.

  1. Cath M
    Posted 02-May-2021 at
    Smaller companies sometimes have great potential and different things to offer that are outside the scope of traditional banking
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  2. Arun C
    Posted 05-Mar-2021 at
    The hidden fees need to be properly and fully disclosed
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  3. Oweiebi S
    Posted 10-Feb-2021 at
    The lending standards definitely should be looked into. At what point do we begin to consider sustainability of these supposed cheap loans? Who bears the costs if these non-bank lenders fail? Who regulates these non-bank lenders. It is however, great that businesses with low credit ratings can access loans, albeit, it must reflect the true cost of ...
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  4. Jacqueline H
    Posted 05-Jan-2021 at
    I am surprised there are not more schemes in the current difficult client.
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  5. Shahid H
    Posted 21-Oct-2020 at
    Should be similar schemes such as Funding Xchange so that there could be more availability of funds to smaller companies and more financial diversity to select the specific product to meet the financial requirement .
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