Editor | 22 November 2016
New government backed funding options for small businesses

New government backed funding options for small businesses

A new scheme will help small British businesses get access to funding after they have had a loan application refused by a major bank. 

Launched earlier this month, the government backed scheme will boost the supply of finance for small businesses by giving them access to new and innovative funding options like those provided by financial technology start-ups.

Bank lending to small businesses has declined in almost every year since the financial crisis. Major high street banks refused around £4bn worth of formal loan applications last year. 

Eight in 10 small business loans are provided by the four biggest high street banks and seven in 10 companies will only approach one lender for finance (usually their own bank).  

The new government scheme will mean that whenever a big bank rejects a small business loan they will have to pass on the customers details to three finance platforms - Funding Xchange, Business Finance Compared and Funding Options. 

These three platforms will then share the SMEs details with alternative finance providers. By making small business owners aware of other funding options that are out there, this arrangement should result in fewer businesses being cut off from valuable funding. 

The new Chancellor Philip Hammond said that SMEs were the lifeblood of Britain’s economy and suggested that they needed to have access to as many different streams of finance as possible. 

“A refusal from a big bank should not be the end of the line for a small business and, thanks to the finance platforms being launched today, now it won’t be.

“We are determined to maintain the prosperity of our business sector and to support an environment where small businesses can grow and thrive.”

What alternative funding is available for small businesses? 

Small businesses have more choices than ever when it comes to raising much needed funds. This new scheme will help make some of these choices more visible to small business owners.

“Alternative funding” is an umbrella term for any funding that’s provided outside of the mainstream bank-lending system. 

Alternative funding financial products are all different but they share some common characteristics. Many of them use technology platforms to connect businesses with sources of funding (crowd funding platforms are the prime example). And many rely on private individuals investing their own money (such as on peer to peer investment schemes). 

Some examples of alternative finance options are: 

  • Peer to peer business lending 
  • Sophisticated investor lending 
  • Crowdfunding 
  • Angel investors 
  • Invoice discounting 
  • Factoring 
  • Supply chain finance 

For more information please contact team@cloudaccountant.co.uk or visit www.cloudaccountant.co.uk