By Daniel Hunter

Almost half (46%) of UK small businesses are planning to grow in the next year, according to new research from the British Business Bank, but many are still unaware of all the alternative finance options available to them.

Published today (Tuesday), Small Business Finance Markets 2014 — the first of a series of annual British Business Bank reports on the state of smaller business finance markets in the UK - shows that the nature of demand for finance among small businesses is changing, with an increasing accent on growth. It reports that 54% of companies raising finance did so to purchase fixed assets or to expand, up from 39% two years ago, while the proportion of companies seeking finance to boost cashflow decreased from 45% in 2012 to 33%.

Although 68% of businesses surveyed said they were confident in their ability to obtain external finance, significant barriers remain for small businesses seeking finance. A major barrier is the lack of awareness of various funding choices and sources of finance.

The research found that, for the businesses surveyed:
· 85% were aware of lease or hire purchase
· only 15% knew about mezzanine finance
· 36% were aware of angel investment as an option
· although 55% were aware of venture capital, only 20% knew a specific supplier they could approach
· awareness of peer-to-peer lending and crowdfunding increased to 35% and 32% respectively, up from 24% and 13% in 2012.

The British Business Bank & the Department for Business, Innovation and Skills (BIS) also conducted research into private equity finance for SMEs, which shows external equity investment in SMEs increased from £1bn in 2010 to £1.6bn last year.

Business Secretary Vince Cable said: “I announced the setting up of the Business Bank two years ago to provide much needed new finance for SMEs. Two years on, the British Business Bank is helping over 35,000 smaller businesses secure the capital they need to invest and grow.

“This new research — the first of its kind by the British Business Bank - is a useful benchmark for measuring the challenges ahead in making British businesses aware of the various alternative finance options available in the market. This is particularly important given the findings also show that almost half of British SMEs plan to expand in the next year. I am confident more businesses will be able to realise those ambitions thanks to the new finance on offer, especially on the equity side.”

Keith Morgan, CEO of British Business Bank, said: “It is clear from our research that there is increasing confidence among UK small businesses and an appetite for growth. The challenge now is to connect the emerging demand for finance with the new forms of funding that are becoming available.

“That is why the British Business Bank is working to encourage innovation, promote diversity and share information, to develop a more broadly based and accessible lending market for smaller businesses.”

Matthew Hancock, Minister of State at the Department for Business, Innovation and Skills said: "This British Business Bank research shows small firms want to grow, and access to finance is slowly getting better. But there is still much more to do. I won't rest until Britain is the best place in the world to start and grow a business, and the extra support for British Business Bank announced at Autumn Statement will help us in that mission."

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