SMEs are set to receive a £2 billion alternative-finance funding boost from the Small Business Act. However, businesses need to choose providers carefully, as new research puts the spotlight on hidden fees.

If the provision in the new Act that compels banks to refer businesses that have been refused funding to providers of alternative finance is properly enforced, the SME sector could witness a multi-billion pound injection of funding, according to alternativebusinessfunding.co.uk.

For a sector that has long struggled to access funding from traditional lenders, this is undoubtedly good news and such a boost in lending would further raise the profile of alternative finance, the use of which has already reached record levels. The Asset Based Finance Association recently predicted that asset-based finance use, led by invoice finance, will break the £20 billion barrier in 2015.

However, as SMEs increasingly embrace alternative finance, they need to make sure they pick the right provider. Recent research from a large invoice finance company has revealed that over 25,000 businesses face more than 30 hidden charges within invoice finance contracts with banks. When every pound counts, businesses need to avoid this kind of bad practice.

How the Small Business Act is implemented will depend significantly on who occupies No. 10 after the general election, so the £2 billion boost in funding isn’t guaranteed. What is more certain is the continued rise of alternative finance.

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