Autumn 2018 marked a decade since the global financial crisis hit the UK economy. As a result of the market collapse, SMEs looking to make headway with new business ventures were finding it increasingly difficult to secure any finance including that of credit from high street banks.
In a bid to support UK economic growth “The Business Finance TaskForce” backed by the UK government was created in 2010 by banks including: Santander, Barclays, Lloyds, RBS, and Standard Chartered. The supply of wholesale funds for some banks was also underpinned by the Bank of England monetary policy in order to reduce the cost of capital.
Despite the gross supply of new loans between 2015-2017 reaching £60 billion a year, figures suggest the stock of SME loans outstanding fell by 12½ per cent, from £176 bn to £154 bn, between June 2011 and June 2018.
The Rise of Challenger Banks
Running parallel to the decline of new SME loans from high street lenders in 2017 was the increase in challenger banks presenting themselves as a viable external finance alternative for SMEs.
What are Challenger Banks?
Challenger banks can be best described as a bank that’s looking to challenge the major UK banks. Established challenger banks include: OakNorth, Metro, Shawbrook, Aldermore, Atom Bank, Starling and Monzo.
Unlike long standing high street banks, they don’t need to manage expensive legacy systems which enables them to remain flexible and act quickly when it comes to developing banking systems and improving the customer experience.
The ability for challenger banks to move fast and operate lean is now placing competition on established high street banks, with challengers aiming to tackle the problems that are all too evident with the large established banks.
Why are Challenger Banks a popular choice for SME financing?
As of July 2018, the SME Lending Market was reportedly worth over £154 billion yet £48 billion is still unmet in the demand by UK SMEs as estimated by the British Business Bank.
Since 2010/11 the UK Government policy has sought to diversify the supply of external finance for SMEs, encouraging companies to look at a range of established and emerging sources of funding and types of products, many of which – often underpinned by fintech developments – have seen strong growth in recent years, supported in particular by the market investment activity of the British Business Bank.
Supporting the relationship between challenger banks and SMEs even further has been thanks to a new directive called Open Banking (PSD 2). This came into force on the 13th January 2018 and has not only given SMEs more power when it comes to making informed decisions on who to lend money from but has also enabled Challenger banks to leverage the data from the big nine UK Banks and add value to the way SMEs finance their businesses.
Business Banking has changed significantly over the past few years, with businesses requiring financing options in days rather than months. For customers wanting to borrow between £500k and £5 million, the experience for many is a very frustrating and a time-consuming process that ultimately stifles business growth.
The business banking marketplace is now ripe for disruption, with the likes of challenger bank Starling improving customer service and changing the way consumers do banking for how we live now.
Opening a business current account with challenger banks is slick, the digital experience is great but some larger businesses looking to borrow money need more.
The latest UK challenger, Leeds-based B-North are on a mission to transform business lending to the larger SMEs that are the powerhouse of the UK economy.
B-North aims to disrupt the UK business lending market by fast and flexible delivery through technology and a lean, regionally-distributed operating model, focusing specifically on the large and under-served broker channel.
B-North are building a challenger bank that will transform business lending and provide loans upto 10 x faster than large incumbent banks. Find out how the team plan to do it here.
Since securing £4 million in funding through an initial seed round in December 2018, B-North received its ‘Invitation to Apply’ from the PRA and FCA, a major landmark in the company’s progress.
“Having completed our initial capital raise in December 2018, momentum has accelerated significantly. We have achieved a huge amount in 2019, and I have been particularly pleased with the progress we have made on technology and our regulatory journey, both of which are important parts of how we will disrupt the business lending market” Said Jonathan Thompson, CEO of B-North.
B-North is now raising a total of £2 million seed capital in exchange for a 12.5% stake in the company.
This investment opportunity is proving popular amongst investors with over 80% of funding already secured for this round. To find out more, visit the GrowthFunders Platform.