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Growing awareness of the alternative finance market

Busy crowd of people

Since the financial crisis a decade ago, banks have been reducing their lending to small businesses. Despite attempts by successive governments to increase the flow of funding to the SME community, many businesses continue to struggle to secure the finance they need to grow because of gaps in the market.

Financial technology (fintech) platforms are making inroads into the UK business lending sector, helping to alleviate the funding gap facing many ambitious businesses. By distributing money to the grass roots of the economy, fintech lending platforms such as LendingCrowd can help to generate growth and create jobs.

Trade association UK Finance, in its December 2018 report, SME finance in the UK: past present and future, said: “The UK SME finance market has changed significantly since the years of the recession, boosted by a period of economic recovery and a strong underlying enterprise environment which has boosted the business population.

“At the same time, the supply of funding has shifted away from many traditionally bank-sourced products towards alternative debt finance and, in selected sectors, equity funding.”

In its 2018/19 Small Business Finance Markets report, the British Business Bank (BBB) said it was “encouraging” that awareness of alternative sources of business funding had continued to grow over the past year.

The BBB noted that 52% of small businesses were aware of fintech, or peer-to-peer lending – up from 47% in the previous year. Awareness of crowdfunding platforms and venture capital had also grown.

“This increased awareness of options will be important in ensuring smaller businesses are better placed to make the right finance choices,” the BBB said.

The UK is the third-largest market in the world for marketplace lending, behind only China and the United States, according to the Cambridge Centre for Alternative Finance. Analysis by lending data provider Brismo shows that the total value of marketplace business lending across the UK rose by 18% to £2.3 billion in 2018.

However, the Genesis Initiative report, Improving Access to Finance for UK SMEs, found that 52.5% of SME owners approached their high street bank first for funding. Of those, 46% did not get the business loan they required. Half of those who were unsuccessful then chose to look no further for funding, believing there were no other options.

Think Outside The Bank

A survey of LendingCrowd borrowers found that 66% had initially sought a business loan from their bank – and 93% would approach us first when they next needed funding. Among the top reasons for choosing LendingCrowd rather than a high street lender was our speed of decision making, and 100% of borrowers said they would recommend our platform to their friends and contacts.

The BBB said: “To encourage more SMEs to use finance, several hurdles need to be overcome. First, greater understanding of the potential benefits of using finance is required, combined with more awareness of the increasingly diverse range of products and providers that exist in the small business finance market.

“Second, encouraging more smaller businesses to seek advice, and to actively consider using a wider range of finance products and providers, will help them access the most appropriate finance for their needs from this more diverse market. High quality, trusted advice will help increase their confidence in assessing the finance offered to them.

“Finally, smaller businesses tend to be overly pessimistic about their likelihood of success when applying for finance. Fear of rejection discourages some from applying, however unjustified. This fear must be overcome for attitudes towards, and use of, finance to improve.”

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Article author

Gareth Mackie

Gareth Mackie

LendingCrowd is the trading name of Edinburgh Alternative Finance Limited, Company Number SC468392, authorised and regulated by the Financial Conduct Authority (Firm reference number 670991). LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

The company's registered office is 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ.

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