Small businesses’ access to finance came under the spotlight once more at the end of 2015 as the City’s watchdog tries to tackle this major challenge for small business owners.
Given a backdrop of “poor outcomes” for a number of SMEs in relation to more ‘traditional’ finance routes, it is no surprise many SMEs have been looking outside the mainstream for capital to make acquisitions, launch joint ventures, refinance, improve cashflow, or fund a change in business strategy.
Alternative sources of funding include P2P business lending, equity-based, reward-based or donation-based crowdfunding, invoice trading, community shares, government schemes, asset-based lending, and mezzanine finance.
The crowd funding industry in particular has exploded in the last few years to boast an estimated market value of $34bn in 2015, according to crowdsourcing research firm Massolution, and it is expected to overtake venture capital and angel investing as a source of funding this year.
But can these forms of non-mainstream lending really offer a viable alternative to banks for SMEs?
The Federation of Small Businesses (FSB) believes so. It has been campaigning for better access to a wider range of finance providers for SMEs, which it hopes will encourage competition and result in easier and cheaper access to funding.
The cost aspect appears to be one of the main barriers to take-up, along with trust in the sector (or lack of it).
But negative attitudes to this sort of finance seem to be slowly changing as alternative players work to establish themselves, and poor treatment of SMEs at the hands of banks drives more of them into the open arms of new providers. As competition heats up between mainstream and non-mainstream lenders, hopefully SMEs will find they have a more attractive range of options to fund their next acquisitions.