It’s no secret that problems around available cashflow have plagued small businesses for decades. So when alternative finance came on the scene and offered to plug the short-term gaps it was a very welcome development.
But now, even though alternative finance does still perform that function, it is being used in many more circumstances. Young businesses who would have seen the banks as their only option only 10 years ago are starting to look at it as their primary option.
Small businesses and individual entrepreneurs in the UK alone used £1.74 billion of alternative finance in 2014. Crowdfunding is the poster boy of the industry, but in terms of numbers it is still small-fry compared to the other routes being made available.
Businesses that still provide true finance solutions, rather than just acting as platforms, are the ones that are quietly driving the industry forward.
Small businesses are starting to see the advantage of their light-touch and innovative approach, free from the clunky and inflexible approach of the banks. Banks are still jumpy from being stung by the recession and the number of business loans being turned down remains high.
>See also: The changing language of brands
A report by Angels Den in September 2014 revealed that more than half (59%) of start-ups have faced rejection when turning to the banks for initial finance. That led to a similar number (58%) turning to their own personal savings and support from friends and family to survive their early days.
One business that is making waves in the start-up scene is Ezbob. It is the name that Orange Money trades under and earlier this year it acquired fellow alternative finance house Everline.
Together they have formed a formidable outfit that is looking to finance a large part of the start-up scene in the UK this year. COO Russell Gould previously told Growth Business he feels the “traditionally conservative” UK is now ready to accept alternative finance as a genuine route to funding.
Gould also told Growth Business that recent legislation forcing banks to give borrowers information about alternative lenders is largely positive; although it is not without its issues.
“It’s positive in that they’re promoting the alternative providers but I think it’s negative in that they’re offering them only as an alternative if you get declined by the bank. I think it can be a more accommodating solution for the small business-owners’ needs,” he said.
But ultimately Gould sees the alternative finance market growing in the UK as people look past their conservative views and towards newer models.
“I think as the alternative space gets more well-known and better promoted, people will start to feel more comfortable using it,” he concluded.
Further reading: The effect of the Enterprise Bill on SME job creation