Awareness Levels of Alternative Sources of Finance is Still Low

In our dealings with growing businesses on the search for finance it’s always surprising how many still believe that outside the traditional High Street banks there are few alternative options to consider.

When we mention crowdfunding, short term loans, merchant cash advances and other alternative sources of finance, there is typically a vague acknowledgement that they have heard of such sources but nothing beyond that.

This lack of appreciation that there are sources of finance to tap into outside of the banks has been highlighted in a recent survey carried out by the British Chambers of Commerce and Bibby Financial Services.

The survey of more than 1,000 businesses provides an interesting insight into awareness levels of the primary sources of finance. Perhaps not surprisingly, awareness of overdraft facilities came out top at 93%, even though banks are not as keen in extending overdrafts as they once were!

Next on the familiarity chart are bank loans and commercial credit cards with awareness levels of 88% and 86% respectively. The growth seen in the usage of leasing and HP since the credit crunch is reflected in an 86% awareness levels amongst UK SMEs.

What sources of finance are languishing near the bottom of the pile though?

Trade finance facilities were known by 46% of businesses, peer-to-peer funding by 42% and angel funding by 39% of those surveyed. Propping up the sources of finance list standing at 19% awareness levels is mezzanine finance (a hybrid of debt and equity). No surprise there perhaps!

Despite what you may think there are a plethora of options available but the key problem is that you simply don’t have the time to search the market for the best options.

In fact, one of our clients this week said that they prefer to use us to source finance because we immediately know where to go thereby saving them time. That where commercial finance experts come in.

One other interesting finding from the survey was that of those firms which were successful in securing finance but ultimately rejected the offers, 54% did so because the interest rate offered was too high.

The main question though is ‘too high compared to what?’

Alternative finance is by its nature typically more costly than traditional High Street lenders due to the higher level of risk and the lower standard of security they are prepared to consider. For the alternative finance industry, the next step after raising awareness levels amongst business owners, is to resolve the pricing perception.

Our advice to clients is as long as the finance available to you allows you to achieve what you want to do, benchmark it in the market to check it’s not too wide of the mark, then look beyond the price and get on with building your business.

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  • Rob delivered a series of 3 workshops aimed at understanding how finance houses look at finance propositions with the aim for us as a team to deliver more of a bespoke offering to our customer base. The training was delivered to a mixture of staff who work with new businesses start-ups and existing established businesses across Mid & South West Wales. Rob delivered the training with an abundance of passion and has really helped my team look at financial propositions in a different light, many thanks again Rob and I look forward to work with you in the near future.

    Shayne Yates | Welsh Government Regional Centre Service Mid Wales
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