The alternative finance market has grown dramatically in recent years, providing a lifeline to SMEs, but the sector remains dwarfed by traditional lenders. If the UK small business sector is going to prosper, alternative finance has to play a bigger role.

Coming into 2016, there was a lot of talk about the need to better educate small business owners about the range of SME finance services available to them, including invoice finance, peer-to-peer lending and crowdfunding. Almost six months later and while there has been evidence of progress in terms of raising awareness, it is clear that more momentum is required.

The latest move from the Competition and Markets Authority is encouraging: as part of its review of current accounts, the organisation has recommended that it be easier for people to compare banks when opening business accounts to find the best price and service. Tellingly, the report criticises banks for their service and pricing, and also recommends more transparent pricing for small business loans and increasing opportunities for professional advisers.

It doesn’t take much analysis of these recommendations to see that the report is calling for a greater awareness of business finance services. The statement follows in the footsteps of the launch of a new credit-data sharing scheme and the banning of anti-invoice finance terms in contracts. All of these developments are positive, but are they enough? The new government Small Business Survey suggests not.

According to the latest edition of the report, bank overdrafts were still the most commonly sought form of SME finance, with peer-to-peer lending and crowdfunding accounting for 5%. While invoice finance is likely to account for a bigger slice of the pie – it is the largest alternative finance product – it is still clear that traditional lenders are the default choice for a lot of business owners.

Arguably, if the SME sector is going to deliver the growth the government wants it to, small businesses need to be less reliant on traditional lenders. They need flexibility, accessibility and reliability, and that’s why alternative finance education is so important.

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