Recent research from the Federation of Small Businesses has identified stark contrasts between the business funding environment for SMEs in the US and the UK.
Small businesses in the US have been spoiled for choice when it comes to raising finance; with 15,000 financial institutions competing to lend to companies. Half of these are banks, while the other half are credit unions. Whereas in the UK, 5 dominant lenders account for more than 90% of loans to SMEs – this is due to alternative finance providers having a poor profile in the market.
However, as banks have become much more risk averse and have tightened up their lending criteria accordingly, there has been a new push towards alternative finance arrangements such as Invoice Factoring, Invoice Discounting, Asset Leasing and ‘Peer to Peer Lending.’
There has been immense recent interest in online ‘peer to peer lending’ – a relatively new concept that allows individuals from any background to lend to SMEs and other individuals; examples include Funding Circle and Zopa. £100M – £200M changes hands on these online platforms per year – and this number is growing rapidly.
The UK business funding environment needs significant reform if we are to follow the model adopted in the US, but surely increased awareness and availability of these alternative lenders are steps in the right direction.