25/07/2012

By Edward Winterton, Executive Director At Bibby Financial Services

The Government has long asserted that the UK’s small and medium-sized enterprise (SME) community has a fundamental part to play in kick-starting the recovery. But there is a strong consensus among business owners and managers that policies such as Project Merlin and the Enterprise Finance Guarantee have singularly failed to get banks to loosen their lending criteria and boost lending levels to SMEs.

Of course, the increasingly risk-averse approach being taken by banks places a greater emphasis on the role of non-bank lending. Earlier this year the Department for Business Innovation and Skills put forward the Breedon Report which suggested that businesses have historically been too reliant on bank lending and called for a greater focus on alternative sources of finance if a funding gap of up to £191bn over the next five years was to be averted.

So what effect has this had? The Forum of Private Businesses (FPB) recently postulated a theory that many businesses remain cautious about the use of alternative forms of funding. Meanwhile our own research suggests many business owners and managers are simply unaware of the full range of alternative funding products and services available to them. As many as 69% of firms have decided against applying for external funding in the past 12 months.

While the Breedon Report succeeded in elevating the issue of non-bank lending to beyond the finance pages, it remains clear that the Government, financial introducers, alternative funding providers and indeed banks need to do more to educate business owners about the range of financial options available to them.

Alternative finance does not mean turning away from bank lending entirely, but being aware of how different types of funding can work together to make a huge difference to firms across the UK. Whether it is through invoice finance, asset finance, the Regional Development Fund or a combination of all these sources, there is money out there to help restore business confidence, improve cash flow and drive economic growth.