As 2015 draws to close, new figures from the Asset Based Finance Association (ABFA) make it clear just how important alternative finance services have become to small businesses.

According to the ABFA, funding secured against invoices and other assets by SMEs in the UK and Ireland has reached £20 billion for the first time. Asset-based finance was worth £19.3 billion in 2014, with the year-on-year increase in 2015 at 4%. Invoice finance accounts for 80% of this asset-based finance, underlining its status a key driver of alternative finance sector growth. A recent study valued crowdfunding in the UK in 2015 at £140 million.

The expansion of the alternative finance sector points to a growing trend among small business owners to look beyond traditional lenders for the finance required for start-up funding, to maintain cashflow and to fund development.

Awareness is building but with business overdrafts being withdrawn at an eye-watering rate – to the value of £8.4 billion since 2011 according to Funding Options – a lot more education is required if the SME sector is to have access to the finance that it needs to drive wider economic growth. Notably, lending to small businesses through overdraft facilities stands at around £10 million, a statistic that underlines the potential for lost development and revenues if greater awareness of services such as invoice finance, crowdfunding and peer-to-peer lending isn’t achieved.

Looking ahead, the alternative finance sector looks set to become an even more important part of small business finance in 2016, not least as traditional lenders remain off the pace (the decision to extend the Funding for Lending scheme is arguably a damning verdict on their performance). However, just how much acceleration we will see depends on the level of awareness generated. Given the importance of SME sector growth, the launch of a government-backed sector-specific initiative next year wouldn’t be a surprise.

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