Revolutions in consumer finance are turning the consumer banking and insurance markets on their heads. For example, the 2014 Stickyeyes Intelligence Report found that price comparison websites dominate the online financial search market, with big names like HSBC suffering huge market share losses.
But change has been slow in the small business sector. According to 2014’s “SME Journey to Finance” from the British Business Bank, half of small businesses sought finance from the four largest banks alone last year, while a full 57 per cent went straight to their existing provider.
As Andrew van der Lem, Managing Director of Communications and Information at the British Business Bank, explains: “The consumer finance market has been revolutionised by price comparison websites whilst the business finance market still mainly relies on SMEs or brokers researching finance options manually.”
Can a new breed of comparison website change that? According to the British Business Bank just four per cent of SME owners researched funding options online last year. This is a figure that Olly Betts, Co-Founder and Chief Executive of BusinessFinanceCompared.com, a price comparison websites for small businesses, understands and is committed to boosting.
He says: “Business finance is more complex than consumer finance. Lenders need to know more about applicants right from the start, and not all finance options can be neatly compared. In fact, it’s this complexity which is putting too many small businesses off looking for finance in the first place.”
But there has been progress. The leading three price comparison sites for small business finance have seen visitor numbers triple in the last six months, according to data from Hitwise, while Google reports that searches for business finance comparison terms have seen an increase of over 100 percent in the last three months.
Betts continues: “To serve small businesses a good comparison platform needs to demonstrate the breadth of finance options and shortlist the best options for that business. We know that small business owners are time-poor, so they need a head-start — and knowing which lenders are most likely to approve them can make all the difference. This is the technology we’re using at BusinessFinanceCompared.com.”
Comparison sites won’t be an instant fix, according van der Lem. He says: “It’s important to remember that SME finance markets are different to the consumer finance market, and we can’t just transplant practices from one to the other.”
He believes that the Government’s small business referral scheme, which will oblige banks to refer any small business they reject to online platforms hosting a wide range of alternative finance providers, could start to challenge the dominance of big banks.
A world first, he says, the scheme would offer an alternative to small businesses and introduce fintech and alternative lenders access to a huge number of new customers. He explains: “The referrals scheme has the potential to really help SMEs find the finance that is right for them.”