UK Credit

UK Challenger Bank helps SMEs get credit

Sixty-five percent.

This is the proportion of new UK businesses that are refused credit, resulting in an estimated £6 billion lending gap between small and medium-sized enterprises (SMEs) demand for credit and available credit.

This data, according to a study by UK challenger bank Cashplus, shows the funding challenges faced by entrepreneurs and small businesses in the UK, which payments and banking veteran Rich Wagner knows all too well.

Several years after launching the regulated banking institution and securing 7.5 million pounds ($10 million) in a Series A, he was still denied a loan based on the simple fact that the company had no no credit history.

“I was a regulated institution [for 10 years], I had a consumer credit license and provided financial services products and I still couldn’t get unsecured credit from the big banks,” Cashplus founder and CEO Wagner told PYMNTS in a statement. interview.

This, along with the fact that getting a standard consumer checking account was a six-month journey through a cumbersome bureaucratic process, made it too difficult a process for people looking to start a business.

These obstacles prompted the launch of Cashplus Bank in 2005 to support these entrepreneurs and small independent businesses often overlooked by big banks, providing them with faster and easier banking services, as well as helping those struggling to obtain affordable loans.

And in 16 years, the company has achieved significant milestones, including processing £20bn in payments and issuing a total of £690m in loans since its inception. The UK challenger bank also serves over 1.6 million customers in the country and has secured a 7% market share of all new UK startups looking to open a business bank account.

According to Wagner, the bank has consistently demonstrated its ability to build a profitable and sustainable business since its launch, adhering to the principle of operating a “good for the customer, good for the company” business. [and] good for the shareholder.

Establish Small Business Credit Score

Building on the legacy of the company’s Personal Creditbuilder which has been used by over 200,000 consumers to improve their credit score, the FinTech recently launched a new Business Creditbuilder tool, developed in conjunction with the Equifax credit reference.

Using this tool, companies will be able to establish their credit score by simply opening a business current account and repaying a loan of around 100 pounds (about $136) from Cashplus over a 12-month period.

“What this does is truly show the user as someone who has the ability to understand taking credit, repaying credit, and repaying credit,” Wagner said, adding that the bureaus of have come to accept the tool as a valuable way to show other lenders that a client can afford and manage credit until it is finally paid off.

To further support businesses, the company has also unveiled a business credit card for UK sole traders and small businesses, offering 1% cash back on all purchases with no monthly or annual fee as part of a goal. delivery of £5 billion ($6.8 billion). ) new loans to SMEs over the next five years.

Big banks are losers

According to Wagner, the big banks are missing a huge opportunity to serve SMEs by assuming that companies are only after big money.

That couldn’t be further from the truth, he said, pointing out that entrepreneurs and sole traders who are in their early start-up phase have simple needs like a laptop or a phone to run their business.

“Startup entrepreneurs would be very happy with £500, then once we know they can afford that £500, we’re very happy to offer them £1,000, £2,000, £5,000,” he said. he said, referring to their “low and grow” strategy of offering smaller loans until customers demonstrate their ability to repay a loan.

According to Wagner, another reason why banks stay away from this group of SMEs is that, under UK regulations, lenders must treat sole traders and entrepreneurs as consumers, and lenders need to a consumer lending license that treats and protects these customers as they would a consumer.

“This is where we think we differentiate ourselves from the standard banking community because we have the technology [and] the lending experience in this space, certainly better than any of the big banks [or] most digital banks,” he noted.

A free product at your own risk

Unlike other neobanks who gave away their products for free for years and ended up suffering huge losses, Wagner said he believes offering a “totally free product” doesn’t make business sense. taking into account the costs associated with processing transactions and providing credit cards to customers.

That’s why digital banks like Starling and Monzo are migrating to a subscription model, “similar to what we did and continue to do 16 years later, because at some point the customer has to pay for their banking services.” , did he declare.

Going forward, the UK fintech plans to roll out a guaranteed savings product for its business credit card, offering to guarantee a lower rate than the issuer that potential customers are currently with.

As Wagner said, “I’m very excited [because it’s] something I started in the US about 20 years ago and can’t wait to bring it to the UK in the next six months.

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