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Importance of Alternative Lending

As the banks continue to fail to live up to the lending requirements of small and medium businesses, it’s becoming more mainstream than ever to look outside the banks for finance. Alternative lenders such as invoice finance providers are growing, with more and more small businesses getting the funding they need to grow. Looking for alternative finance is really becoming an essential step for businesses looking to secure finance.

Despite government initiatives such as the Project Merlin and Funding for Lending, the banks are failing to lend enough to small businesses. Entrepreneurs and the UK’s small businesses are the life blood of the economy, and if they aren’t receiving finance to help them grow and expand, it’s not surprising that economic grow is continuing to stall – it’s not the only factor involved of course, but it could be influential. The banks are becoming more averse to lending to ‘risky’ small businesses following the recession, which is understandable – however, the dominance of computerised credit scores have shaken the lending industry and often means that small businesses are turned away without a chance.

The average micro-business in the UK needs just £2,143 to set up. However, just 20% of micro-businesses are funded through a bank loan and 1 in 6 have even been driven to payday lenders. Only 1 in 10 have been able to secure a loan from their bank in the first year of trading. As such, it’s not surprising that so many businesses fail within their first couple of years.

One of the ways to combat this is to look outside of the banks for finance. For example, invoice factoring can be used by a huge range of different businesses – if you’ve got some sales on your books and sell to customers on a invoice basis, then you could benefit from factoring. By unlocking the cash tied up in unpaid invoices, your business could get a valuable injection of working capital.

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