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Why alternative finance is a vital source of SME funding

News that SMEs are continuing to find it challenging to raise capital and manage their finances is a sign of the important role of alternative finance. Current market conditions and attitudes to lending demand that business owners are aware of all the funding options available to them.

According to new research from Funding Options, over half of SMEs in the UK, equal to more than 2.8 billion businesses, need help to take control of their finances, while around a third of small businesses owners admit to having found themselves in financial difficulty. These findings help explain why the level of company insolvencies reached a five-year high in the first quarter of 2019.

Downbeat market conditions are a primary factor behind these struggles, with Brexit-borne uncertainty continuing to stifle economic growth. The disappearance of many high street brands is testament to the damage being done. At the same time, the pressure of managing a blizzard of policy and non-policy costs, such as those relating to pension auto-enrolment, the national minimum wage and GDPR, is weighing heavy on small businesses.

And the entrenched attitude of traditional lenders towards small business lending is doing nothing to help these companies survive the squeeze on resources. Tellingly, the Funding Option study also revealed that almost 30% of small businesses find it difficult to access funding from mainstream lenders. Data from Hadrian’s Wall Capital is further evidence of this trend, with its research showing that over half of the country has seen bank lending to small businesses contract over the last year.

Of equal concern are Funding Options figures that show that over 20% of business owners have approached family and friends for money after being turned down by banks. New research from payment provider Worldpay confirms the growing prevalence of this precarious borrowing strategy. It is an approach that is fraught with potential dangers, not least in terms of the threat it poses to important relationships and mental health. In addition, it shouldn’t be the case that only entrepreneurs with wealthy relatives or friends should have the opportunity to build a business.

This is why alternative finance is a vital source of small business funding.

The likes of invoice finance, asset finance, peer-to-peer lending and crowdfunding are redrawing the small business funding landscape, providing firms with access to capital for essential investment. These facilities are helping companies to put together start-up capital and to raise money to maintain cashflow and grow operations.

This is how a small business in Sussex used peer-to-peer lending, through a commercial finance broker that specialises in alternative finance, to raise the capital to invest in new equipment.

Given the state of the economy, it is not surprising to hear that small businesses are finding it difficult to manage their finances. Nevertheless, it is vital that these firms maintain forward momentum. For this to happen, business owners need to be able to access capital on an affordable and flexible basis. This is why alternative finance should be part of small business financial planning.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.

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