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Before the outbreak of coronavirus, alternative finance had become the rising star on the world’s stage. But now, with a number of government support schemes failing to ensure that all small and medium-sized enterprises (SMEs) are protected during the pandemic, as well as the lowest interest rates the country has ever seen, alternative finance will almost certainly play a vital role in the repair of the UK’s battered economy.
According to research, 60% of SMEs are still uncertain about their ability to finance long-term growth. This uncertainty has been heightened as banks are growing more and more reluctant to lend to them. In these times of crisis, alternative finance provides SMEs access to innovative and flexible solutions to their financial requirements.
In this piece, we look at some of the key facts which demonstrate the importance of alternative finance, and its ability to become the new, innovative way in which businesses can raise capital. But, of course, for it to truly thrive, the FCA and government needs to support it through investment and better regulation to protect retail investors.
If you are a small business owner looking for funds to help develop your business, now has never been a better time. According to a recent study commissioned by the British Business Bank, SMEs are likely to become beneficiaries of the potential growth of the alternative finance marketplace over the next five years, reaching a total net value of £12.3bn.
Cash flow problems generally occur in business due to systemic late payments made by customers/clients, or a lack of quick access to finances. Additionally, 55% of SMEs find cash flow to be the biggest hurdle in their path to success while over 40% point to an increase in their working capital requirement compared to the previous year.
Alternative finance offers flexibility and businesses are beginning to bridge their cash flow related problems with the increased access to finance the alternative lenders offer.
According to the British Business Bank, around 100,000 loan applications by SMEs are declined by banks, amounting to a funding gap of £4 billion each year. However, in the cases where a bank rejects a business’ loan application, it could raise concern over future growth due to the business’s inability of securing finance for essentials. In this scenario, a business could opt for alternative finance. Because they are able to borrow from central banks at the base rate, therefore their borrowing costs are much more competitive than alternative lenders' resources. So it is always wise to go to a bank first, but expect stricter lending criteria due to regulatory processes
No longer are SMEs looking solely to their bank for capital. Alternative finance has grown to such a state that businesses now have open to them a wider range of runding options with flexible solutions. With methods such as invoice financing, P2P lending, equity crowdfunding, business owners now have far more inventive and pragmatic ways to raise finance without the fear of being denied. Of course, there is still more work to be done to raise awareness and increase access for businesses.
Authors: Oliver Murphy & Sacha Bright
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.
Tagged: alternative finance sme crowdfunding p2p
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