Finding the right product in the age of great expectations
By Mark Johnson, chief operating officer
Since 2008, the alternative lending space has matured to become part of the mainstream business funding sector. Indeed, in many cases, ‘alternative’ could now probably be replaced by ’complementary business funding’ as this best describes the reason for applying for, and the way in which the applicants want to use the funding. Along with the maturity of the sector, the number of product offerings has grown considerably – although now they appear to have reached a plateau, giving clients and advisers more choice and diversity than ever before.
When viewed together, there can appear to be limited differentials between the products, comparable interest rate ranges, term and minimum required trading times, which may give the impression that the sector is full of similar products. It’s true, there are a fair few which are similar in many respects, but there are also products which are fundamentally different in the features they provide the SME. As we’ve always believed, and most of the market knows, one of the factors to success for a borrower/broker/lender relationship is the right funding at the right time.
Understanding the need of the client and the best match for that need is the key and, without the right advice, the client may be in danger of making the wrong decision – something which could cause more problems for a business than not obtaining the funding at all.
In addition to the way the product works, other important considerations are pricing, how the cost is applied to the funding, the real cost of the funding and flexibility. Another important area is the security. Is the product truly unsecured? Some might argue that personal guarantees are, in fact, security. Their nature and meaning must be fully explained to the guarantors.
The lenders have a role to play here in achieving and maintaining a high degree of transparency so that the client fully understands the funding and is happy that the outcome is the right one for them. As founding members of the Association of Alternative Business Finance, we believe that transparency is of paramount importance, and are looking to be active in shaping the future development of the sector by self-regulation ahead of the inevitable regulation that will come, and indeed has already started.
In an age where there is an expectation of speed and instant gratification, are people less inclined to dig deeper and find out more? The market has developed hugely and, with so many lenders and products, the role of the broker/trusted adviser has never been so important in ensuring the SME client has access to the right funding for their business to be a success.
With the above point in mind it has been clear that intermediaries have been devising their own panel of preferred lenders where they can get to know the full details of the products they are advising their clients to use, and build a strong, trusting business relationship with the BDM. The challenge for any BDM today is not only to secure business but to ensure their lender has a place on the intermediaries’ lending panel. It seems like history is repeating itself.