Things are on the up. The economy is stronger than it has been for a number of years, unemployment is at one of its lowest points and private sector businesses are thriving. But not all growth businesses are taking advantage and grasping the financial nettle for fear of being stung, not knowing what might be round the corner.

Seeking finance for growth shouldn’t be as painful as it may sound – thanks to the alternative finance revolution. Business ambition is out there, and now the finance options are too.

The shifting financial landscape

When the world’s population woke up one morning in 2007 and saw the banking industry crumble before our eyes, it was safe to say that the world of finance would never be the same again. In the past five years, the emergence of alternative finance solutions - such as peer-to-peer lending – has thrived. The model is simple. It puts investors and businesses together to mutually benefit one another. One gets a better return on their investment, while the other gains access to much needed funds to allow a business to grow and flourish.

To date, £4.4 billion has been lent to UK SMEs through such platforms – half of which in just 2015 alone. So where’s the problem, I hear you ask? In my opinion, that figure is far too low. Businesses in the UK either haven’t been made aware of the alternative finance sector, or finance brokers haven’t been able to relay the benefits of using such options.

How can alternative finance help UK businesses?

Even in today’s modern world of business, founders and finance directors are very cautious when it comes to finance. And that’s the right way to be. Ambition and the desire to achieve business growth is as strong as ever – some might say at an all-time high – but stretching a business to achieve it’s targets doesn’t need to come with financial sacrifice.

At some stage in a businesses life-cycle, it will need funding of some sort. In the majority of cases, they’ll need numerous. The traditional way of obtaining funding through the banks has changed since that point in 2007. Lending criteria has changed and if you don’t fit in a certain box, you’re shown the door. That’s regardless of whether you are a growing, strong business, but more to do with what sector you’re operating, whether its to fund short-term goals, as well as other factors.

Even if you are ticking the right boxes, gaining affordable funding that lands in your account at the time you need it is a major hurdle. Today, all businesses have a seasonal element – whether you’re a suncream manufacturer, a fireplace merchant or a shoe shop. Demand has peaks and troughs.

Thanks to technology and an ability to look at businesses on a case-by-case basis, alternative finance is redefining how businesses view finance.

It now doesn’t, and shouldn’t carry any negative connotations, but it should reflect and encourage growth amongst UK SME’s.

Where invoice finance options are so vital

Almost a third (31%) of all SMEs in the UK say that late payments are the biggest cause of cashflow difficulties. These cashflow challenges are having a detrimental effect on immediate needs of businesses, as well as their longer-term growth potential.

Furthermore, it has been reported that the average SME is now owed £100,000 in outstanding invoices - up from £60,000 in 2014 – so the issue is simply getting worse. Payment terms are being stretched, with 90 and 120 day contracts being a very real prospect for many SMEs providing products and services to big retailers or supermarkets – such as Tesco who in recent months admitting to delaying payments to suppliers to boost their own topline.

Therefore it’s very easy to understand why peer-to-peer invoice finance through a sales auction model is becoming increasingly popular for SMEs. It puts businesses back in control of their finances by unlocking funds shackled by nonnegotiable payment terms

For example, if a business has an invoice of £10,000 for sale and the payment term is 30 days, a final sale price may be reached in the auction at £9,850. The ‘seller’ or invoice owner will be forwarded the agreed £9,850, while the remaining £150 will go to the investors, with Investly getting a fee as a proportion of this total.

Back in the old banking days, invoice finance was seen as a solution for businesses that needed short-term finance at high cost and in many cases, it was used as a last resort. This was mainly due to applicants requiring the short-term funding to pay wages when money had been spent on stock, or similar.

Funding for now, and the future

British SMEs are owed more than £500bn in outstanding invoices. That’s money that could be used to grow and develop a business – and in turn, help to employ workers and aid the UK economy even further.

By Ruth Chamberlain, UK country manager at Investly