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Use of personal finance highlights alternative finance role

News that 30% of small business owners turn to personal finance rather than a professional finance service highlights the importance of alternative finance and the need to focus on raising awareness.

The new research from Hitachi Capital UK shows a worrying trend among small business owners for digging into their own pockets when they need to support cashflow. Only a fifth of the businesses questioned had used services such as invoice finance, peer-to-peer lending and finance leasing. The message is clear: more has to be done to educate business owners about the financial options available to them, including alternative finance services.

The alternative finance sector has grown rapidly in recent years as a result of prolonged cautiousness from traditional lenders and has earned itself a mainstream SME finance profile. The government is on board too: the British Business Bank has integrated alternative finance services into its portfolio and legislation governing borrowing against unpaid invoices and credit-data sharing is being reformed to improve access to the likes of invoice finance and peer-to-peer lending.

However, there is still room for more growth for the alternative finance sector. The findings of the Hitachi Capital UK survey underline this, as does a new report from the Federation of Small Businesses (FSB) that has revealed that a lack of leadership and management skills is hampering the growth potential of SMEs. Tellingly, among the recommendations put forward by the FSB to reduce this knowledge gap is greater involvement from finance providers and professional associations. For these providers and associations, raising awareness of all the available SME finance options, and reducing the use of personal finance to cover shortfalls in cashflow, is likely to be top of the agenda.

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