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Why the 2020 Budget needs to include alternative finance

News that a significant number of SMEs are experiencing financial difficulties and are reliant on personal funding from owners underlines the need for better access to finance. The 2020 Budget is an ideal opportunity to address this issue.

Small businesses have been calling for improved access to finance for a long time and new data relating to SME financial health and funding leaves little doubt as to the importance of the matter. According to a study by Nucleus Commercial Finance, one in four of SMEs that it surveyed encountered financial problems over the last 12 months.

The most common reasons for the difficulties faced by these companies are price rises and the impact on margins, unforeseen expenses, late payments and the effect on cashflow, and a fall in sales. The research also revealed that almost a quarter of business owners are putting their hands in their own pockets to solve financial problems within their businesses.

Despite a recent upturn in business confidence, the new figures suggest a great deal of fragility remains. Such conditions are the legacy of the uncertainty surrounding Brexit and its impact on the economy, and a raft of policy and non-policy related costs and the pressure they have brought to bear on business owners.

As such, it’s not surprising to hear small business groups campaigning for meaningful action on the likes of late payment, business rates reform and better access to finance. Tellingly, according to a new SME study by Iwoca, two thirds of the businesses surveyed believe that making it easier for SMEs to apply for finance should be a priority in the March Budget.

Notably, the Iwoca research presents Bank of England data that show finance to SMEs by the main high-street lenders fell by 6% between 2014 and 2019. The decline underlines the difficulty surrounding access to finance as banks have tightened lending criteria or have withdrawn from the business lending arena all together.

So, businesses are lobbying the government to take steps to improve access to finance through traditional channels. But the scope should be wider. Any steps taken in the Budget to deliver better access to finance should include raising awareness of alternative finance.

In the wake of extended caution from traditional lenders, the likes of invoice finance, asset finance, peer-to-peer lending and crowdfunding are redrawing the small business funding landscape. These facilities, which offer a more personalised approach to lending, are helping small businesses grow. They are providing them with access to capital, on an affordable and flexible basis, to help manage cash flow and for critical investment.

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

The health of the small business sector is critical to the economy and improving access to finance would help SMEs to build on the recent spike in confidence. The March 2020 Budget is the perfect platform for acting on this need and alternative finance should be part of the planning.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.

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