News that a British university is to lend to small businesses and that the Business Secretary has again criticised banks over SME lending underlines the sea change that is taking place in SME finance and the importance of alternative finance services, from peer-to-peer lending to invoice finance.

The timing of the news that the University of Huddersfield is to lend to small businesses as part of the Funding Circle peer-to-peer lending scheme couldn’t have come at a more telling moment in terms of illustrating the extent to which the SME finance landscape has changed. The announcement came hot on the heels of another attack by Vince Cable on bank lending to small businesses.

The university will make £100,000 in funding available to small businesses, with the earnings earmarked to help fund scholarships for disadvantaged students. At the same time, the Business Secretary has revealed that he has written to banks asking why more small business credit hasn’t been made available through the Funding for Lending scheme. He has threatened to introduce legislation to force their hand if he doesn’t receive their cooperation.

While these developments seemingly pile growing pressure on the performance of the long-awaited British Business Bank, they also highlight just how far reaching the change in SME finance has been in recent years. The continued cautious attitude of traditional lenders has led small businesses to use alternative finance services on a significant scale.

Leading the charge has been invoice finance, whose flexibility and transparency is attracting a growing number of small businesses. Such companies are using the service in tandem with traditional SME finance products and as a stand-alone small business credit facility.

New Office for National Statistics data that the number of people setting up their own business in the UK since 2008 has risen by 367,000 to 4.2 million only illustrates the level of demand for small business lending and the role of services such as invoice finance.

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