by Andy Milsom, Head of Partner Training and Development, BNP Paribas Leasing Solutions
Since the financial crisis of 2008, debt fiance has been difficult to obtain for many small and medium-sized businesses. In this context we need to remind ourselves that the banks have traditionally been, by some way, the largest source of such fiance. The changes forced upon banks after 2008 have therefore had a profound effect on the whole world of business fiance.
We must start by recognising that banks are changing fast. Firstly, they are facing ever tougher regulation from our own Financial Conduct Authority and international regulatory bodies; and secondly they are facing competition from a growing number of ‘fitechs’ who are finding it relatively easy to take away the profitable transaction-based services from which the banks have always generated significant profit at little risk (e.g. foreign exchange).
Fintechs are technology-driven organisations that deliver financial services ‘online’ and include the ‘peer to peer’ lenders who provide a platform for those who have money to supply those who need money, without the involvement of the traditional bank intermediary. Global investment in fitech businesses has grown dramatically in the last two years, from $4 billion in 2013 to $12 billion in 2014, and will almost certainly continue on a very steep growth curve. This has the potential to leave only the relatively expensive and riskier parts of banks’ business free from competition.
SMEs will find it increasingly difficult to obtain new or extend existing bank credit lines because the due diligence now needed for a bank to extend a £10,000 business loan takes nearly as much time as one for £1,000,000. Under these circumstances, it is easy to see how banks might lose interest in the smaller transaction and smaller customer.
Further, recommendations have been put forward that might require banks to set aside additional capital reserves when lending to SMEs. If this proceeds, it will add further costs to such transactions.
On a more positive note, as the banks continue to withdraw from a market that has traditionally provided significant levels of fiance for SMEs to acquire business equipment, the specialist funders in the market will grow in importance. For those resellers who understand the financial climate in which they operate and can move towards offering their customers a managed service solution, the future can be approached with real confidence.