2013 is barely a few weeks old and the alternative finance sector has received more government backing with news that the Prime Minister is to inject a further £30 million into the Start-Up loan scheme.

The announcement is timely as it follows hot on the heels of news from the Bank of England that lending to businesses fell by £2.8 billion in November 2012 and by £17.1 billion for the year to November. The British Chambers of Commerce has been quick to point out that these figures underline the difficulty businesses, in particular young, fast-growing SMEs, continue to have in securing SME lending.

The government will no doubt be hoping that the extra funding for the Start-Up scheme, under which £110 million will be made available over the next three years, will help counteract the continued cautious attitudes of banks and building societies regarding SME credit, especially start-up funding.

The government’s growing focus on alternative finance, in this case Dragon’s Den-style loans, illustrates the rising importance of this sector, whose expansion is being spearheaded by invoice discounting. At the end of last year, the government announced plans to allocate over 50% of the £100 funding earmarked for small businesses under the Business Partnership Scheme to peer-to-peer lending.

Recent figures from the Asset Based Finance Association further emphasise the position of invoice discounting, with this SME finance product continuing to drive the use of alternative finance products among its members during the third quarter of 2012.

As we prepare for the government’s mid-term review, it is clear that alternative finance is forming an increasingly important part of its strategy to boost small business lending and reignite general economic growth.

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