Small businesses still have low awareness of alternative funding options

The value of the alternative funding sector has soared over recent years but many SMEs remain unaware of the options open to them, new research has claimed.

A recent survey by the British Chambers of Commerce (BCC) quizzed more than 1,000 businesses and found that awareness of alternative finance options such as mezzanine finance and peer-to-peer funding was markedly lower than awareness of more traditional funding types.

The study found that the four types of funding business owners were most familiar with were bank overdrafts (93%), bank loans (88%), commercial credit cards (86%) and leasing and hire purchase facilities (86%).

By contrast, small business owners said they were far less familiar with alternative finance options. The four types of funding that they were least familiar with were mezzanine finance (19%), angel finance (39%), peer-to-peer lending (42%) and trade finance (46%).

The study also found that nearly half (48%) of all businesses surveyed had applied for finance of some kind over the past 12 months. The main reason for doing so was business growth, cited by 42% of those who had applied for finance. This was followed by improving cash flow (26%) and funding for start-ups (14%).

Of the businesses that were offered funding but rejected the terms that were offered, 54% said they did so because the interest rate offered was too high. 39% rejected the funding offered due to the collateral being too high.

Research by the Forum of Private Business (FPB), meanwhile, found that more than a quarter of small businesses said they had been unable to grow as they didn't have access to the right finance. A sixth of those surveyed also said they were looking to secure finance in 2016, but were not confident in their ability to do so.

Alternative finance options could present the perfect solution for those businesses who have been turned down or do not find traditional funding products to suit. According to the UK Alternative Finance Industry Report by Nesta and the University of Cambridge, the alternative funding market was worth £3.2 billion last year and represented 12% of the market for lending to small businesses in the UK.

By Phil Smith

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