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Banks Promote Alternative Finance

Alternative finance is a growing presence for many small businesses, especially when often banks are unwilling to lend to those business that they deem even remotely risky. In light of this, even the banks themselves are starting to back alternative finance options as a real contributor to the business finance market, especially for those companies turned down for traditional bank loans and overdrafts. A new pilot scheme to raise awareness of other routes to finance is due to begin in the next couple of months.

This promotion of alternative lending is an attempt to reduce the shortfall in funding for those looking to borrow money from the banks, the total value of which could stretch to many billions of pounds over the next five years. The banks have come to an agreement to test a formal referral service to assist businesses who fail bank lending criteria – this will help them to obtain funds from smaller, regional lenders known as community development financial institutions (CDFIs). Vince Cable has this week highlighted the importance of such grass roots finance so this could be a positive development for the small business lending environment.

CDFIs are commonly backed by the government or charities and tend to have a low profile within the lending market. This lack of awareness amongst the business sector could mean that many companies are missing out on opportunities for valuable financial help.  This new scheme backed by six of the biggest banks will aim to increase awareness amongst those businesses who are struggling to find help elsewhere.

The pilot scheme promoting five of the biggest CDFIs is due to launch within the next couple of months. Banks are hoping that their involvement in the scheme will help to boost their reputation amongst SMEs who have been turned down by them, as well as encouraging businesses who may be wary of approaching banks for finance. Whether this will be the effect of the scheme is something only time will tell.

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