Out with the old and in with the new. As the Funding for Lending Scheme is branded a failure, the government unveils its Help to Grow initiative. But where’s the alternative finance?

New figures relating to the Funding for Lending Scheme underline how the initiative failed to plug the gap in SME lending. According to the data, net lending fell in every quarter in 2014, with lending in Q4 decreasing by £810 million. The total decline in SME lending over the year was almost £2 billion.

At the same time, the government has unveiled plans for its Help to Grow scheme, which is aimed at plugging the gap in small business funding that the Funding for Lending Scheme failed to close. Based on Germany’s Mittelstand, the new initiative will use the government’s balance sheet to guarantee SME loans by private lenders, or will co-invest public capital alongside private cash. Is this another opportunity for the development of alternative finance services?

If the underwhelming performance of the Funding for Lending scheme has taught us anything, it is that SME finance needs are no longer being serviced entirely by traditional lenders. The SME finance marketplace has changed, primarily with the growth of the alternative finance sector and, in particular, products such as invoice finance, peer-to-peer lending and crowdfunding.

These services have become an increasingly important part of SME finance provision – the link-ups between RBS and Santander and the Funding Circle and the integration of alternative finance into SME finance strategy by the British Business Bank are evidence of this status.

However, there is more room for alternative finance expansion. It is vital to the health of the country’s SMEs and the growth prospects of the wider economy that the sector is given a larger, more prominent role and that the use of its products is further encouraged.

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