Working capital loans: Internet competition to the house bank

Over 90 percent of companies use traditional bank loans to finance their working capital. Most finance around half of their needs in this way. Not everyone is happy with the financial institutions. The desire for alternatives is growing, as a recent study shows.

Such expectations pose major challenges for house banks. The difficulties are partly a homemade problem. The banking industry is not necessarily at the forefront when it comes to digitization, which can increasingly map complex tests with intelligent automated processes. Financial institutions are often slowed down by decades of wild IT growth, which would first have to be brought up to standard. And that takes a lot of time and money. Secondly, banks are highly regulated. The considerations for lending are correspondingly extensive and complicated.

 

Little understanding of credit bureaucracy

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What is necessary from a banking perspective is only partially understood by companies. Four out of ten companies criticize excessive bureaucracy in working capital financing. Almost a third struggle with speed. Especially when things have to be done quickly, companies have to deal with complicated and lengthy application and examination procedures. Sometimes there is a lot at stake. After all, the companies need the money to be able to generate sales that have already been planned. And the reward of the effort? In the end, not necessarily a cheap loan, because after all, significantly more than a third of the companies also criticize the high costs.

Unsecured working capital loans are particularly expensive for companies, so 68 percent prefer to avoid this form of financing altogether. Most companies would already be denied them by the provider anyway, the donors insist on collateral. This limits the scope for action by companies, especially when plant investments are currently backed up with real collateral. If a larger business then begins, companies will have great difficulties in pre-financing. Such expenses often cannot be managed from cash flow alone, most companies can only manage 50 percent at most.

 

The house bank’s financing monopoly falls

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Collateral is one thing, but banks simply do without good business if they make working capital financing so difficult. As a rule, these are loans with a comparatively short term and less risk of default. Companies are quite willing to dig deeper into their pockets for such unsecured financing. Moderately higher interest rates would not be a problem for almost two thirds. But that is precisely what the financial institutions do not offer them.

However, this could ultimately develop to their disadvantage. The time when companies rely exclusively on banks for financing issues is coming to an end. Sure, especially in the medium-sized sector there is in many cases a real relationship of trust with the house bank, which has sometimes grown over decades. But what is left for companies if they can only get badly needed loans with the difficulties mentioned, if at all? Especially since the majority expects even more restrictive award criteria for the near future according to the “Financing Monitor 2018”.

 

Hope for unbureaucratic online platforms

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So you look around for alternatives. And she finds it in the digital world. Eight out of ten companies could already imagine using online financing platforms for their working capital loans. Provided that the process is more straightforward there than at the house bank. Another strong argument for such offers would be a faster credit decision, which could make online financing attractive for 56 percent of companies. The possibility of expanding the financing mix with a further alternative and thereby gaining a degree of independence from the house bank also appeals to more than 40 percent of the companies – not least against the background of large interest charges on the overdraft facility. For four out of ten companies, access to unsecured loans is also a motivation to take a closer look at online financing.

These are all numbers that banks should pay attention to. Especially since there is still great potential for the FinTechs. In this way, more and more young executives are climbing up the company hierarchy heads, for whom purely digital products and channels are a matter of course. Accordingly, interest in online financing is likely to increase rapidly. Against this backdrop, it remains uncertain how long house banks can score with the bonus of increased trust. In any case, with the stones that they obviously put in the way of companies when it comes to working capital financing, they are not recommended for the future.

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