Alternative finance: more needs to be done

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As the lending market continues to diversify, many businesses are still unaware that alternative forms of finance are available. high street banks remain the first port of call for 39% of the UK’s SMEs says Close Brothers Business Barometer, which surveyed 900 firms.

The view of 75% of SMEs in the UK is that funding is no cheaper today than it was five years ago.

“While high street banks are still understandably a popular choice for many, there has been a strong rise in the role of alternative finance,” said Neil Davies, CEO, Close Brothers Asset Finance.

“Taking asset finance as an example, the latest figures released by the Finance & Leasing Association (FLA) show that asset finance for new businesses grew for the sixth consecutive year, with FLA members providing a record £30 billion of finance to the business sector and public services.

“This represents almost a third of UK investment in machinery, equipment and purchased software in the UK last year. What we’re hearing from business owners is that the one of the biggest appeals of asset finance is its flexibility and the fact it gives them access to the equipment they need without incurring the cash flow disadvantage of an outright purchase.

“The importance of maintaining cashflow for SMEs shouldn’t be underestimated because it’s seen as a key indicator of a business’s health.”

The view of 75% of SMEs in the UK is that funding is no cheaper today than it was five years ago, notwithstanding interest rates dropping from an already low 0.5% in 2011 to its current base rate of 0.25%.

“This is not a surprising result given that interest rates have been at 0.5% or less since March 2009,” said Neil.

“And access to finance continues to improve, with 83% of respondents to the business barometer feeling it was ‘as easy’ or ‘easier’ to access finance compared to five years ago.”