By Daniel Hunter

More than a third of the UK's small to medium sized businesses (SMEs) are planning to invest in their business in the second half of 2014, but many are not aware of the alternative funding options available to them, according to Aviva.

The insurer’s latest bi-annual SME Pulse revealed that 36% of SMEs are planning to invest but a third of those don't know what alternative finance is or know how to take it out. A further 29% are completely unaware of alternative finance.

Awareness levels are lowest among sole traders, with eight in ten admitting that they didn't understand or were unaware (84% and 80% respectively).

Just two in ten (19%) SMEs say they have considered using alternative finance as a form of funding; with twice as many (40%) saying they have not considered it as an option because they prefer to deal with their high street bank. Almost three quarters (70%) say that they perceived alternative finance as a riskier option than applying for traditional finance via their bank.

This is despite the benefits of alternative finance reported by many SMEs. Half (51%) of those who have previously applied for alternative finance say that they did so on the basis of better rates and greater flexibility than using a high street bank, and one third (31%) said it was easier to secure alternative finance than getting a loan from the bank.

Despite the increasing profile of alternative financing options such as crowdfunding and peer-to-peer lending, Aviva’s research found that one quarter (25%) feel that there is not enough information available to them about the various funding options.

Robert Ledger, head of small business at Aviva, says:
“High street banks will always be an important port of call for many SMEs — whether they are at the beginning of setting up a new business, or seeking investment to expand an existing one. However, with the rise of alternative finance options and increasing media focus on schemes such as crowdfunding and peer-to-peer lending, it’s important for small businesses to understand that there are a variety of options open to them outside of traditional finance methods, designed to suit differing business needs.

“The first step is to understand what the finance is for. Decide whether it is to achieve growth or working capital, whether the business has security it can put down and whether the business needs investment and advice. Then look at which option best suits the business needs."

Do you use alternative finance options? Or maybe you don't know what they are? You can email your reactions to editor@freshbusinessthinking.com

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