New SME finance figures from the Bank of England, showing a marked decrease in lending to small businesses, have underlined the importance of invoice finance.

It’s not what you want to land on your desk on your first day but that’s what the new governor of the Bank of the England was greeted with: new data showing a £452 million drop in SME lending in May. The decline is part of a £1.27 billion fall in overall business lending, despite the extension of the Funding for Lending scheme, and illustrates just how vital alternative finance, led by invoice finance, has become to small businesses.

Unsurprisingly, on the back of the new figures on SME loans and overdrafts, the new governor has been widely petitioned to magnify the bank’s focus on small businesses. The British Chambers of Commerce have led the way, calling for a greater role for the British Business Bank, further improvements to other initiatives, including the Funding for Lending scheme, and greater private financial institution involvement in SME lending.

It is not difficult to see how invoice finance and other forms of alternative finance fit into this picture. Traditional lenders’ caution towards SME finance remains a significant barrier, despite efforts to improve lending – the recent figures suggest that shifting SME owner attitudes to traditional lenders and vice-versa is proving harder than imagined.

Hence the importance of sources of patient capital growth and risk capital, and, in particular, the British Business Bank. Third-party finance has long been mooted to play a prominent part in the organisation, especially since such providers were included in the Funding for Lending scheme, and it seems that this role will be as crucial to its success as it has become to SMEs across the UK.

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