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Have you considered alternative finance for your business?

The banks may finally be lending again, but is there actually a need to go back to them?

Eight years after the financial crisis, bank lending to UK SMEs is finally on the increase again, according to the Bank of England. But have we now returned to the pre-financial crisis environment, when overdrafts and loans were widely available?

The short answer is no. Close Brothers’ research underlines the growing importance of alternative sources of funding to SMEs. In our most recent Business Barometer, 73% of SME finance directors said they were aware of alternatives to traditional bank funding. Significantly, not a single one had considered using alternative finance products because of problems accessing traditional forms of funding. In other words, they had made a proactive choice rather than being forced to look elsewhere.

Alternative finance not only includes newer innovations, such as online crowd funding, but also offers options which have been around for many years – invoice finance, for example, which unlocks the value of unpaid invoices, and asset finance, where funding is secured against the value of company assets. This breadth of choice, along with the following series of advantages, is part of the explanation for why alternative finance continues to thrive despite the return of the banks:

Greater speed

In the latest Close Brothers Business Barometer, more than a third of businesses considering alternative finance said the main reason for doing so was they saw it as “a quick way to access cash”. SMEs have long been critical of the poor service they receive from their banks, with a recent Business Banking Research suggesting that fewer than one in four would recommend their bank.

More flexibility

Small businesses want finance that is adaptable to their needs, particularly as they develop and grow. Bank loans and overdraft facilities, however, are fixed products that don’t flex as the business changes. Alternative finance may be more suitable for companies that have changing needs over time.

Results from the Close Brothers Business Barometer show 13% of finance directors like the way invoice finance facilities grow in line with the company’s turnover. The Federation of Small Business has praised the sector for the way it rejects a “one-size-fits-all” model of funding, with a range of different options for a variety of business needs.

Bespoke options

Unlike many banking products, no two SMEs are the same. That can cause problems – a loan that may be suitable for one business may not work for another. Research published last year by the British Chambers of Commerce stressed the important of SMEs taking financial guidance tailored for their particular business.

Alternative finance arrangements are very often based on such guidance, with funding solutions designed around the company’s individual characteristics – including turnover, industry, stock levels or number of invoices.

Lower costs

Tailored solutions designed around a business and implemented quickly are very often likely to be more affordable. In research published by AltFi, 59% of business owners said it was too expensive and time-consuming to look for a traditional bank loan. Moreover, the Close Brothers Business Barometer survey revealed one in five SMEs said they thought alternative finance could work out cheaper than other finance options.  

Availability

The Independent External Reviewer to the Banks says that he is receiving hundreds of complaints from SMEs turned down for credit by the banks. In other words, while the banks are lending more to SMEs, not all businesses are securing the finance they need – all the more reason to consider the positive aspects of alternative finance.

Take a look at our latest infographic: Why SMEs can't afford to ignore alternative finance

Infographic: Why SMEs can't afford to ignore alternative finance

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Close Brothers Invoice Finance
Ridgeland House
165 Dyke Road, Hove
East Sussex, BN3 1UY

T: 0127 305 9530 *

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