Compared to the US, the UK is far behind in its diversity of financing options.
In a recent survey by the Federation of Small Businesses, there are 15,000 financial instituions offering small business funding in America. Half of these are banks, half are credit unions.
In the UK, the difference is significant. There are just 5 dominant bank lenders which account for more than 90% of loans to small businesses.
This shows the extent to which UK SMEs are still limited in their financing options. However, a harsh economic funding climate means more businesses are looking for alternative routes to finance as traditional avenues are hard to access. As banks look to lessen their risk and tighten their lending criteria accordingly, many businesses need to explore other options when looking to solve cash flow issues and fund growth and innovation.
The government has invested more time investigating alternative funding options, such as invoice finance, peer to peer lending and crowd funding. However, grants and funding programmes have been a mixed bag.
Looking forward into 2012, growth in non-bank funding looks set to grow.
Invoice discounting can offer SMEs a flexible, secure and fast route to funding. It works be freeing up cash flowed which is tied into unpaid invoices. Late payment problems and limited cash flow can be eased, both of which are often problems for small businesses caught in supply chains.
Factoring offers a similar solution, but the factoring lender will chase the payment of invoices for you. It is also fast, safe and secure, giving your company the ability to solve cash flow problems without relying on bank funding.
Though the UK alternative finance sector is still far behind it’s rival across the pond, 2012 looks to be the year where options will continue to grow – which can only be good news for small business funding.