According to new research from Funding Options, alternative finance now represents almost 50% of the SME finance market, with firms accessing funding worth £76 billion.

The scale of small business alternative finance use and its market share illustrate the rapid growth the sector and the status it now holds. In just a few years, it has gone from a player on the periphery of the market to a mainstream provider for a significant proportion of UK SMEs.

The rise has been chiefly down to the cautious attitudes of traditional lenders, which have only recently started to reengage with the SME funding market after withdrawing for a prolonged period. Despite efforts to reconnect with small businesses, these banks remain untrusted and more research from Funding Options shows why.

According to the organisation, one of the biggest complaints that SMEs have about traditional lenders is the withdrawal of overdrafts without any notice. Reportedly, bank overdrafts have been closed at the rate of £3.7 million a day since 2011. This is why the likes of invoice finance, peer-to-peer lending and crowdfunding are so popular – they are accessible, transparent, flexible and affordable.

The embracing of alternative finance is an important step for SMEs at a crucial time – as economic recovery builds momentum, small business optimism must be turned into real growth. Alternative finance is key to achieving this goal.

Notably, the sector is playing an increasingly integral part in government plans to boost SME growth. The tackling of late payment has been identified as a major target by the new Small Business Commissioner and the government has lifted anti-invoice finance restrictions on SMEs to help achieve this goal. The government has also committed more of its own spending budget to SMEs.

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