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What is behind the surge in SME lending?

According to new figures, over a third of SMEs are trying to raise growth finance and the number of UK technology businesses seeking funds is up by over a quarter. What’s behind this surge in demand?

The answer is alternative finance. According to new data from Radius Equity, the number of UK technology businesses looking to raise funds through the Enterprise Investment Scheme increased by 27% to 650 in 2014. At the same time, Fundbird has reported that over a third of SMEs in the UK are attempting to access finance in order to fund expansion. Furthermore, there is news of a massive growth in lending, including small business lending, over the last 12 months by challenger banks, such as Virgin Money and Secure Trust Bank.

These figures underline the central role that alternative finance and services such as invoice finance, peer-to-peer lending and crowdfunding are playing in improving access to SME finance. The cautiousness of high-street banks has long been a barrier to growth, but in recent years, alternative finance has stepped into the breach and provided a lifeline to small businesses. As a result, the SME lending landscape has been redrawn and the alternative finance sector continues to flourish.

This change in finance strategy is illustrated in a new Business Banking Insight poll for the British Chambers of Commerce and the Federation of Small Businesses. The poll shows that over a third of companies founded after 2010 would consider peer-to-peer lending if they wanted to grow their businesses, compared with 18% of those established before 2000. It also found that newer companies are more open to using different sources of financial guidance.

As the momentum behind UK SME sector growth continues to build, it is increasingly clear that alternative finance is one of the key drivers.

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