Simon Carter, director of commercial finance broker Touch Financial, says the challenge, as it has always been, is one of education and understanding of what ‘alternative finance' actually means, when it is appropriate and how it can be used to help support business growth

Small businesses are being declined finance; we know this from surveys and various case studies where businesses eventually seek the help of a broker having been denied help from banks, where no ‘alternatives' have been suggested.

It has been argued banks are deliberately ‘disinclined' to steer customers towards other lenders, but I suspect the problem is bigger. I think many advisers within banks are not experienced or suitably equipped with sufficient knowledge of what alternatives are available - including within their own organisation - to give meaningful advice.

And the challenge does not end with banks. Typically, a small business having been declined finance will seek help from their accountant. The accountant, similarly unfamiliar with alternative lending, refers the enquiry back to the banks, and so the loop of negativity is closed. The banks are rarely giving the cash-strapped business a genuine ‘choice'.

This premise is born out by the facts: the average value of ‘traditional' forms of funding (bank loans, overdrafts etc) supplied to businesses fell by 5% over the last year. Net traditional funding to businesses is now down by almost £100 billion since 2009/10, falling 19% from £485 billion to £391 billion, according to statistics published by the Asset Based Finance Association (ABFA).

Alternative lending, particularly invoice finance (where the principal ‘asset' is the sales ledger), is often a better working capital solution for SMEs looking to take on new contracts; the facility grows as business turnover grows, as opposed to a facility growing as the result of a personal guarantee or secured against an historic trading performance, often with disastrous results.

One reason businesses seek alternative finance is to mitigate suppliers paying them late. Research from Bacs in 2014 suggested the late payment debt burden shouldered by UK businesses reached £46.1 billion, of which £39.4 billion is owed to SMEs. Subsequently, reports appeared recently of 120-day payment terms imposed by the drinks firm AB InBev on UK suppliers, creating a funding gap whilst suppliers still have to pay wages, taxes and other overheads.

When a company with a good order book and a solid financial track record is unable to get finance to meet new business opportunities, all seems perplexing. This is especially true for companies in sectors where there are weekly wage bills to pay such as recruitment and construction.

Invoice finance, as one of the principal methods of asset based finance, enables businesses up to 80% of the invoice value immediately, thus keeping the cash flowing and not being held to ransom by larger customers.

A company can receive as much as four times the cash it would from a bank facility, and without red tape. Which begs the question: why is invoice finance still being ignored as an essential part of the funding environment?

Invoice finance is just one of the tools available to help businesses to grow. For too long banks have seen it as finance of the last resort, primarily because it has been misunderstood. It is time to think again.

For more information: www.touchfinancial.co.uk