It has now been 10 years since the financial crisis hit the world and caused the worst economic recession in living memory. Then, and now, mainstream banks have not served “UK Plc” in their attempts to both survive and grow during the economic crisis. To make matters worse, the UK Government faced its own financial crisis and launched an austerity programme - which is still in place today and likely to remain so for the foreseeable future. Economic growth remains weak and is barely improving. The vote to leave the European Union has also led to further uncertainty regarding investment in the UK economy, with concerns over the UK’s future relationship with countries inside the single market.
Over the last 10 years, HM Government has induced, tempted and incentivised the UK mainstream banks to support businesses, both large and small, but to no avail. They behave as a law unto themselves; have taken, and continue to take, measures to embellish their own balance sheets.
As a result, the banking industry that already had very little trust from UK enterprises is at an all-time low; and this is unlikely going to change in the foreseeable future,. And just to back this up, here is a recent article (March 2018) in the CICM (Chartered Institute of Credit Management) magazine regarding the banking sector:
In the meantime, alternative Finance is very much a growing market in the UK and across Europe and will likely continue to be for some time to come...
In 2016, 23 million small and medium sized enterprises (SMEs) across Europe managed to generate €3.9 trillion in value and employed 90 million people, clearly indicating that SMEs are, without a doubt, becoming the backbone of the European economy. This is a reflection of the UK as well. There are 7 million live limited companies in the UK, but only 7,000 are labelled as large organisations. Companies House in the UK views a small or medium sized company as anything up to £30 Million in annual sales.
It is fair to assume, that 2018 will see an increase in insolvencies (it’s already started) in addition to Brexit generating uncertainty and to a weak UK economy showing very little sign of much growth. They will not all be headline grabbers like Carillion Plc, although there are doubts surrounding some in this sector: Capita, Laing O’Rourke, MITIE, among others, that somewill definitely fall into the SME category. It is unknown what the eventual fall-out will be following the failure of Carillion and its likely effect on sub-contractors who worked for them.
The construction sector will not be the only one being hit.We are already seeing some disturbing news coming from the restaurant sector: Prezzo is closing more than 90 of its restaurants, Byron is closing almost a third of its outlets, Jamie’s Italian closing 12. And just this week, Carluccio’s has announced it is calling in KPMG to advise on its future strategy.
Last week, we saw two major high street businesses fail - Toys“R”Us and Maplin. And House of Fraser Plc has gone to its landlords looking to reduce their rent. Could there be a possible CVA (Creditors Voluntary arrangement) in the offing?
These companies, owing to their size, make the news but there will be many more who won’t. How willing are our high street banks to help? It might be 2018 but banks are far removed from the organisations they once were helping/financing. Can you go to your local branch and actually speak to a bank manager, someone who knows your business? Probably not. Your local branch has probably disappeared and given way to the development of some trendy outlet anyway. Instead, you have to speak to someone (at the head office ) who does not know your business. Fair enough, banks are relying on alorithsm to base their decisions to lend money so they are more likely to get a return, but then, with revenues failing, loans becoming rarer, UK businesses are losing confidence in mainstream banking and are turning to the alternative lender.
All of this has led to an explosion in the alternative lending market, being more dynamic, more flexible and more willing to compete against a rather prehistoric group of banking organisations. It’s like comparing an ocean liner to a speedboat. One is agile, able to change direction and take steps quickly to avoid any dangers ahead. The other isn’t. A speedboat would have been able to avoid the iceberg where the Titanic could not and did not.