Invoice finance reached a mammoth £17.4 billion in Q1 2018, while asset-based lending leapt 11%. This impressive growth is part of a wider trend in alternative finance, with the sector going from strength to strength. So, why are so many SMEs turning to non-bank finance?

According to UK Finance, asset-based lending totalled a whopping £4.3 billion in the first quarter of the year, with invoice finance growing by 2.4% compared with the same three-month period in 2017. In addition, the number of firms using the facilities continued to rise, recorded at over 40,300 in Q1. Use of peer-to-peer lending and crowdfunding also continues to grow.

Alternative finance services are clearly a hit with small business owners. A key factor behind this popularity is their accessibility, affordability and flexibility. Indeed, with confidence in non-bank facilities growing stronger, the sector is at a point now where the “alternative” moniker is beginning to look out of place. Tellingly, alternative finance is a key component of the British Business Bank and is a sector that high-street banks have increasingly sought to embrace. The ongoing education of small businesses about the benefits of non-bank finance should only serve to continue the sector’s growth.

Of course, at the heart of the strong growth in the use of alternative finance services by small business owners is the need for capital, whether start-up or development investment or money to safeguard cashflow. And in a difficult business environment, the need has never been greater.

Looking ahead, there are few signs that market conditions will remain anything but challenging. In recent weeks, high-street royalty Marks & Spencer and House of Fraser announced huge store-closure programmes, while the list of other high-street staples that have had to put similar plans into action or have collapsed altogether continues to grow ever longer. In the manufacturing sector, Jaguar Land Rover’s decision to cut 1,000 jobs is a sign of the unease affecting the market, with the firm citing Brexit headwinds and confusion over diesel engines as primary reasons for the move.

At the same time, small business owners must manage a range of policy-related and non-policy-related costs, including the financial demands of legislation relating to pension auto-enrolment, the national living wage and apprenticeship schemes. Then there are costs relating to the digitalisation of the working environment and the connectivity and cybersecurity that this progress demand. The massive data breach reported by Dixons Carphone is yet another stark reminder of the need to be properly protected against cyberattacks. In addition, small businesses must also deal with the impact of late payment and business rates reform.

It’s not an easy time for small businesses. And to handle these pressures and grow despite them, these firms need financial planning that gives them room for manoeuvre. Alternative finance is helping to ensure that business owners have this manoeuvrability. This is how a Sussex small business used alternative finance, through a commercial finance broker than specialises in alternative finance, to raise the money to buy new equipment.

The growth of alternative finance is redrawing the small business landscape, as more and more firms turn to the likes of invoice finance, asset finance, peer-to-peer lending and crowdfunding to access capital vital to maintaining forward momentum. Current market conditions and attitudes suggest that the sector’s role is only set to grow further.

To find out more about A&T Business Associates services, contact Tony on 01903 602211 or tony@atbusinessassociates.co.uk.