SMEs continue to look towards alternative finance
A sizeable number of small businesses in the UK continue to find it difficult to secure funding through traditional routes. In the last three months of 2016, the proportion of successful credit applications by small businesses fell from 70% to just 62% compared to the two previous quarters. This shows a growing hesitance amongst mainstream financial groups to back SMEs.
At a time when the number of small businesses in the UK is growing, the need for financial support to get new companies off the ground is keeping pace. In the wake of Brexit, uncertainty is another challenge that many SMEs are grappling with, leaving some of those declined by banks for loans to look elsewhere for financial support.
For the ever-growing number of SMEs turned down by mainstream lenders, alternative finance is looking like an increasingly attractive proposition. Coming in a number of forms, alternative finance is seen as a more innovative means of financing growth for many ambitious enterprises. Turning to digital currencies like Bitcoin, crowdfunding and community share issues is already popular.
Figures for 2016 revealed that the alternative finance industry in the UK was worth £3.2bn. Part of its appeal is its efficiency - rather than waiting several weeks for a loan or grant to come through, some alternative finance providers can give an answer and authorise finance within days through having fewer restrictions than their more traditional rivals.
Services like invoice discounting from Touch Financial and crowdfunding also have added convenience which, for those time-pressed businesses feeling the pinch, can mean the difference between being able to pay the bills and going out of business. Peer-to-peer lending, another form of alternative finance, is proving attractive too, especially for smaller, short-term amounts of funding.
The long-term picture for small businesses is less than rosy. At the end of last year, a report revealed that over 275,000 SMEs in the UK were showing visible signs of financial distress. The prevailing trend for smaller companies suggests that this figure won't be going down anytime soon, something many banks seem to be taking on board.
In going to alternative finance providers, many struggling companies are receiving a lifeline that helps to pay for employees' wages, utility bills and office space. Any would-be entrepreneurs looking to self-employment may follow their lead, shunning more traditional forms of finance in order to get going. Whether this trend will continue for the foreseeable future is, however, up for debate.
Post Date: April 13th, 2017