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EIB P2P SME loan shows value of alternative finance

The announcement of a £100m lending programme for UK SMEs by the European Investment Bank (EIB) has underlined the status of alternative finance at a time when access to funding for small businesses remains difficult.

The EIB is making the capital available to small businesses in the UK through Funding Circle, which is a leading peer-to-peer lending platform. The move from the not-for-profit organisation, whose shareholders are EU members, is big vote of confidence in the UK alternative finance sector, which has grown rapidly in recent years as SMEs have sought more flexible, accessible and affordable finance options.

At the same time as the EIB SME funding injection, German bank Commerzbank has launched a digital peer-to-peer lending platform, becoming the first bank in Germany to do so. The parallels with the banking sector in the UK are interesting – while British banks have begun to embrace alternative finance, on the whole, the services have been kept at arm’s length, with lenders happy to point customers in the direction of third-party providers. Given the growing role of alternative finance in the UK, perhaps more traditional lenders will be tempted to follow Commerzbank’s lead.

Such a move would be welcomed by small businesses in the UK because accessing finance remains a problem. A new funding scheme from West Sussex County Council (WSCC) has underlined the difficulties still faced by SMEs. The new funding scheme is offering grants of between £15,000 and £100,000 to SMEs, and on announcing the project, the leader of the authority acknowledged the role played by continued caution from traditional lenders. The project is part of the Business Growth Grants Programme and SMEs in the Coast to Capital region can apply.

The importance of the alternative finance has never been clearer and the funding projects from the EIB and WSCC underline the sector’s status. What they also make clear is that small business owners would benefit from greater education about services such as invoice finance, peer-to-peer lending and asset-based finance. Raising awareness must be a key focus going forward.

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