New guidance for SMEs on alternative finance

13 July 2012

New guidance on how to raise finance through alternative forms of lending has been launched for start-ups and small businesses.

The free digital guide, produced by Smallbusiness.co.uk, is aimed at entrepreneurs and small business owners on how they can access new online sources of finance such as crowdfunding and peer-to-peer lending.

Both have become increasingly popular in recent years as small businesses continue to struggle securing finance from high street banks in the wake of the recession.

The guide looks at the benefits of each platform via case studies and also offers advice on how to put together a successful application to secure funding.

The new lending platforms, which are accessed via the internet, allow businesses to take loans directly from both individual and institutional investors, without the need of the intermediation of a traditional financial institution.

Borrowers usually have a choice of giving away equity - a stake in the business - in exchange for investment, or to take out a standard loan.

Commenting in the guide, Samir Desai, CEO of Funding Circle said: "Comparing our finance landscape to other countries, the UK had the fewest options. Small businesses really were at the mercy of the banks."

"It's great news that the business finance landscape is changing so quickly, and very exciting to think of the potential of UK SMEs over the coming years, with access to finance becoming a reality again."

In peer-to-peer lending, private investors receive high stable returns while businesses obtain low cost finance - often at much more competitive rates than high-street banks.

Alternatively, crowdfunding offers both equity finance and debt finance, where businesses can accept multiple loans from 'armchair' lenders.

Initial start-up costs for businesses have risen sharply in recent years. A survey last week reported that owners now require close to £100,000 to get their business off the ground, with many entrepreneurs turning to their own savings or their families to boost their funds.

According to the BBC, around £250 million has been lent from the three main peer-to-peer lending sites to date, helping thousands of businesses.

The guide is available to download in digital format or as an app.

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