Commercial finance markets are often portrayed as heroic battles between banks and non-banks for market share, but this is far from the whole story – particularly in the asset finance market where the customer benefits in terms of access to capital is reliant on a fully functioning and healthy relationship between banks, non-banks or independent lenders, and the broker community.
There was understandable disappointment last year that the initial stages of the Government lending schemes did not extend widely and that the Bank of England’s Term Funding Scheme for Small and Medium-sized Enterprises (TFSMEs) excluded non-banks.
Whilst the latter did not change, independent lenders were eventually accredited in significant numbers to the Coronavirus Business Interruption Loan Scheme (CBILS) and once again stepped up to play a substantial role in supporting the investment needs of SMEs across the UK through the pandemic.
Far greater customer choice is a positive lasting impact from the 2008 financial crisis and the Finance & Leasing Association (FLA) has reported that of £15.9bn of new asset finance lending to SMEs in 2020, £5.7bn was provided by non-bank asset finance providers, equivalent to 36 per cent of the total provided. This was down from £20.1bn of new lending to SMEs in 2019 but saw a similar split (£7bn was provided by non-banks in 2019).
We all know the importance of asset finance as a cashflow tool and to support investment in new equipment, covering over a third of annual investment spend. Independent non-bank lenders therefore play an essential role in powering the UK economy through funding that might not otherwise be available.
Whereas the shift away from high street bank dominance had its origins in changing risk appetites for SME lending, what exists today is a far more collaborative market structure. Indeed, many independent lenders have wholesale funding facilities with banking institutions that recognise the ability of smaller lenders to secure a wider distribution of funding via strong networks of brokers and intermediaries. Despite concerns last year, these wholesale facilities remained robust and proved the ability of banks to be flexible to enable their non-bank funders to support the end customer through forbearance requests and payment holidays.
The strengthening economic recovery post pandemic will bring both challenges and opportunities for all businesses and the lending market relies on a diverse range of funders and brokers working together in a manner that priorities the customer benefits. To emphasise the need, key Government policy initiatives such as net zero, super-deduction capital allowances and ‘levelling up’ are dependent on access to finance.
Businesses have more choice than ever before and that represents a healthy and diverse market. Non-bank lenders will continue to play a key role as sector and product specialists that complement strong credit appetite with flexibility and fast processes supported by technology. But many of these lenders deliberately do not have well-known customer brands and it’s therefore the broker community that makes this all possible, with an advisory and whole of market lens that is invaluable. This is the ecosystem that has worked so well in difficult circumstances over the last 18 months and will undoubtedly continue to do so as we move forward.