By the end of August the figure was about £4.36billion. Fleximize – which lends to small and medium-sized enterprises based on their monthly revenue, letting them pay back more in good months and less in others – estimates that the sector has on average provided about £211million a month this year.
In 2012 the alternative finance market was worth around £267million and last year the figure was about £1.74billion, it said.
Fleximize founder Max Chmyshuk said: ‘Though banks have become less willing to lend to SMEs, the funding options open to businesses have never been more diverse.’
Louise Beaumont of GLI Finance, which has invested in 19 alternative finance platforms, said ‘SMEs are not getting access to the finance they need to thrive. Traditional High Street banks have areas of strength but are not cut out to cater for SMEs. The alternative finance industry is better equipped, but there is a lack of awareness among SMEs about the options available.
‘The proposed British Business Bank referrals scheme [where banks will refer borrowers to alternative lenders] will go some way to improving this.’
The BBB is reviewing potential delivery partners for the referrals scheme. Chancellor George Osborne announced last year plans to legislate to require lenders to release information on small businesses they reject for finance, so that they can be identified and approached by alternative funders, yet there is still no delivery date.
But Adam Tavener, founder and chairman of Clifton Asset Management, who is also behind one of the potential delivery partners – Alternative Business Funding, a platform that connects businesses with alternative funders – argues that a lot of work is going on.
One alternative lender, Funding Circle, has been named among the finalists for the UK tech awards, which showcase the contribution of fast-growing and innovative tech firms.
Funding Circle is the UK’s largest peer-to-peer lender to businesses, where people and bodies lend directly to small and medium-sized enterprises.
Last month it announced it intends to float a new London-based fund, the SME Income Fund, as a part of a bid to generate £150 million for small and medium-sized enterprises. It would be the first fund floated by a peer-to-peer lender.
Borrowers are identity checked and its credit assessment team review all applications before they are posted onto the marketplace. Investors then choose which type of firms to lend to and spread their money across a number of them to reduce their risk. Funding Circle then manages the monthly repayments from the borrowers back to the investors.
He said: ‘It looks like not a lot is happening, but behind the scenes a huge amount is being done. We have just submitted a 36,000-word document after our initial expression of interest.
‘The BBB is being very discreet, but I have had a team of eight doing nothing but work on this for the past month.’
Meanwhile, Andy Bishop, head of business development for SME lending at Lloyds, said last week that crowdfunders are ‘not the nemesis of traditional banks, nor vice-versa’. He said: ‘The banks and the crowdlenders are not deadly enemies and there are definitely ways in which we can work together.’
Phillip Monks, chief executive of Aldermore Bank, said: ‘I think the referrals scheme has got legs. I think it’s to be encouraged. Sometimes a bank will refuse to lend money for reasons that are outside the credit quality of that customer.”