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Report highlights need to raise SME awareness of alternative financing options
Call to action cites potential £20 billion benefit to UK economy by 2020
A recently published report, The case for raising Small and Medium Enterprise awareness of alternative finance, highlights the importance and potential impact of increasing the awareness of SMEs to alternative sources of finance.The report demonstrates, using both data from Cambridge University's Centre for Alternative Finance and some illustrative case studies of SMEs, the crucial role that alternative finance can play in funding the growth of UK SMEs. Funding simply may not be made available to them due to the retrenchment of the incumbent banks from SME lending since the financial crisis.
Although the alternative finance sector has registered impressive growth since the crisis, awareness of these options remains low amongst SMEs. The reports cites a study by Cambridge and Nesta that found that 56% of SMEs were unfamiliar with any forms of alternative finance. Given that the recent report by the Competition and Markets Authority found that just four banks provide 80% of the credit to British SMEs, there is likely to be a significant number of SMEs that are missing out on funding opportunities because they assume that a traditional bank is their only port of call for finance.
The report notes that the government has been supportive of the alternative finance sector but urges further action to increase awareness, incorporating the expertise of the Government's Behavioural Insights Team (commonly referred to as the Nudge Unit). Improved awareness will benefit not just the financial services sector as a whole, where greater diversity and more competition are widely supported policy goals, but also enable SMEs to deliver on their growth potential which, according to the CBI, could add £20 billion to the UK economy by 2020.
"Technological innovation has underpinned the development of alternative finance platforms. By simplifying the links between investors and borrowers, alternative finance's tech-led approach has the potential to fundamentally transform how SMEs get capital, with significant benefits for the UK economy as a whole."
