The latest SME Finance Monitor from BDRC Continental suggests that a reluctance to invest is stifling small business sector growth. Alternative finance is key to reversing this trend.

According to the new Monitor, while figures indicate rising profit levels among small businesses, at the same time there is evidence that more and more companies are shunning external finance. This decline suggests a reluctance to invest, as this type of finance is integral to facilitating development, and this sentiment is not good for the SME sector and the wider economy. In growth terms, the handbrake is still on.

So, what’s causing this reluctance to use external finance? Well, it’s the same old story – cautious attitudes and restrictive lending policies from traditional lenders continue to colour the thinking of small business owners. Mindful of the challenges involved in accessing SME finance from traditional lenders, some small businesses are turning to personal savings or friends and family.

But there is a way to reverse this trend and nurture investment growth, and that’s greater education about alternative finance. The popularity of this sector, led by the likes of invoice finance, peer-to-peer lending and crowdsourcing, has grown dramatically in recent years, but it still remains a niche player on the market.

Hence, going forward, it’s important to raise awareness of the availability and benefits of alternative finance. More and more SMEs are using its services because they are easier and quicker to access, and offer greater flexibility, transparency and affordability.

This message needs to find a much wider audience because if small businesses are made aware of the range of finance options they have, they are likely to adopt a more positive attitude towards development and investment. And with the handbrake off, the SME sector and the economy are free to accelerate.

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