By Daniel Hunter
Small and medium-sized enterprises (SMEs) in the UK are now using £76 billion worth of alternative finance, according to finance supermarket Funding Options.
It shows a 43% rise on last year's total of £53bn as SMEs continue to term to alternative finance instead of traditional bank loans.
Funding Options said that alternative lending to SMEs is now equivalent to 46% of the value of traditional term loans and overdrafts, which have fallen to £163 billion according to Bank of England figures. That represents a fall of 5% from £172 billion a year ago, and 17% from £197 billion four years ago.
Many small businesses that were once dependent on loans from high street banks for their funding are now exploring a range of alternative finance choices, including invoice finance, leasing, non-bank commercial mortgages, crowdfunding and peer-to-peer lending, to drive their growth.
Funding Options said that banks are being forced to continue to reduce their exposure to small business lending, as regulators class it as riskier than other in-demand forms of lending, such as residential mortgages and loans to larger businesses. This means banks are forced to hold more regulatory capital if they increase their small business lending.
Several government schemes aimed at encouraging increased lending to SMEs, such as the Funding for Lending Scheme and Enterprise Finance Guarantee, have so far failed to make the desired impact.
Conrad Ford, CEO of Funding Options, said: “Alternative finance has now passed its tipping point. It is now used by a huge number of SMEs in every sector of the economy, and is closing the gap with bank lending.
“It might be alternative in name, but it’s now completely mainstream.
“Virtually any business can now find a workable solution to its funding needs through the vast range of options available in alternative finance.”