According to a paper published by the Centre for the Study of Financial Innovation, bank lending to SMEs is on the decline as banks are under increasing pressure from regulatory bodies to shrink their balance sheets.
The report suggests that SMEs in need of funding should consider internet platforms for new funding sources, e.g. Seedrs – an FSA-authorized equity crowdfunding platform for investing seed capital.
There are also P2P lending sites such as Funding Circle, where small businesses can take out loans from a pool of lenders (including both businesses and individuals).
The government has been trying to foster angel investment in the UK. A recent example is the Angels in the City program – launched in April to produce 125 new angel investors by March 2013. ‘Angels’ are high net worth individuals that are capable of providing capital for a business start up.
Earlier this year, the UK government published its own report on SME financing, the Breedon report, which encouraged UK businesses to pursue non-bank financing. George Osborne announced in his March budget that the government has allocated £100m of its £1bn credit easing scheme, the Business Finance Partnership, to smaller businesses. Lending will begin in the autumn.