Report finds alternative finance is increasingly important to SMEs
A new report shows that the UK alternative finance sector grew by 84% to £3.2 billion in 2015, and highlights its increasing importance to SMEs.
The report, Pushing Boundaries: The 2015 UK Alternative Finance Industry Report, was published by the University of Cambridge in partnership with Nesta, KPMG and the CME Group Foundation.
According to the report, approximately 20,000 UK small businesses received a total of £2.2 billion in alternative funding in 2015. Equity-based crowd-funding alone provided 15.6% of total UK seed and venture stage equity investment, and peer-to-peer business lenders provided £881 million in funding to approximately 10,000 SMEs.
The figures represent a total increase of 186% in the number of SMEs served by alternative lenders, and a rise of 120% in SME alternative funding. Alternative finance totalled around 3.4% of gross national bank lending to SMEs (£53 billion).
Despite this impressive growth, the rise was smaller than the 161% increase recorded between 2013 and 2014. However, the report suggests that the number of institutional funders involved in alternative financing is growing: 45% of UK alternative lending platforms reported some form of institutional involvement in 2015, compared to 28% in 2014 and 11% in 2013.
SMEs suffer £1 billion funding gap
Research by private equity firm IW Capital demonstrates that UK SMEs are falling into a £1 billion funding gap, despite the availability of billions in untapped private investor finance.
IW Capital’s Taxpayer Sentiment Report 2016 found that 34% of investors with more than £100,000 in investments would invest in SMEs, but lack the knowledge to do so. This equates to £126 billion in untapped private investment funds.
However, investor confidence in private equity investment is high. 71% of private investors with over £40,000 of investments feel confident in the growth capabilities of UK SMEs and 63% intend to fund SMEs in the next five years, with 54% intending to use the Enterprise Investment Scheme (EIS) in 2016/17.
David Cameron pledged in 2015 to fill the £1 billion funding gap preventing the growth of SMEs, yet George Osborne’s latest Budget failed to sufficiently address the vital issue of development funding for these businesses. IW Capital’s research suggests that the Government needs to do more to educate high-net-worth individuals on how to invest in upscaling SMEs.
Small business funding via government-backed loans continues to fall
The number of SMEs receiving loans through the government-backed Enterprise Finance Guarantee (EFG) scheme has dropped to its lowest figure ever, according to recent research.
The EFG sees the government act as partial guarantor on bank loans made to SMEs that are unable to offer assets as security.
However, research by the British Business Bank shows that only 446 companies were granted a loan in the last quarter of 2015, to a total value of £55.7 million.
This compares to 2,030 loans granted between April and June 2009, totalling £201.6 million. The number of loans granted has dwindled year-on-year ever since.
Despite the poor take-up, the chancellor announced in the latest Budget that the scheme will be extended until at least 2018.