Alternative lending 'gaining popularity among SMEs'

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Many small firms are examining alternative ways to secure funding

The UK's small to medium-sized enterprises (SMEs) are increasingly shifting their attention away from high street banks and to alternative lenders when it comes to securing finance.

This is the conclusion of new research from the British Bankers' Association (BBA), which showed that the number of newly-approved loans to SME borrowers across the UK fell by 40 per cent in the third quarter of 2015 in comparison to the same time in the previous year.

Meanwhile, the average amount borrowed by those that did take on high street loans fell from £28,000 to a new record low of £20,000 during the last 12 months.

This apparent reduction in appetite for high street lending has been attributed to a growing trend of peer-to-peer lending across the SME sector, as businesses look for more affordable and reliable sources of income with which to fund their aspirations and growth.

Indeed, chief executive officer and co-founder of online lender MarketInvoice Anil Stocker told smallbusiness.co.uk: "Banks have grown increasingly reluctant to lend to SMEs, who see business lending as high risk, low return practise.

"Approvals for loans and overdrafts have been hard to come by, despite direct government incentives such as the Funding for Lending Scheme.

"At the same time the city's businesses have recognised peer-to-peer lending as a better, more efficient way of financing their growth."

Common issues faced by businesses working with high street banks to secure borrowings were cited as cumbersome processes, slow turnaround in responses and a lack of reliability - loans being approved in one instance, but denied the next.

The fact that many companies - particularly those in the SME sector - rely on borrowing to fund their expansion plans means that each of these factors could potentially have far-reaching consequences in terms of lost opportunities for firms.

It is therefore not surprising to see a significant proportion of businesses seeking out new opportunities of financing. Indeed, this is especially true given the dire economic performance that typified much of the first half of the decade and the need for firms to have access to more secure lending now that the recovery appears to have taken hold.