At the launch of its alternative finance guide, Ripe for the picking, the CBI highlighted research showing that high-growth medium-sized businesses could be worth up to an additional £20bn to the economy by 2020.
Vince Cable, secretary of state for business, said: “Britain’s businesses cannot grow, export and innovate without proper access to bank credit. But they also need alternatives when looking for finance as a traditional bank loan might not always be the answer.
“The CBI’s guide will help raise awareness of the different types of finance available and how alternative credit channels can introduce more competition to give SMEs choice.
“The Government wants to see a shift in the market structure towards non-bank lending and through the business bank is deploying £300m of the £1bn allocated to the initiative to invest alongside the private sector in new entrants and the growth of smaller lenders.”
The launch of the guide follows a report from GE Capital which showed that SMEs plan to spend £51bn over the next 12 months but need the right funding to realise their potential.
The CBI said that UK banks are the source of nearly 80% of all credit to growing businesses, however, the financial crisis has put the UK on an irreversible path to a “new normal” in financing.
Regulatory reform, balance sheet restructuring and a more realistic pricing of risk mean that traditional bank debt will no longer be the right finance for all businesses.
Katja Hall, CBI chief policy director, said: “The UK’s SMEs are the backbone of our economy so ensuring they can access the capital they need to grow and create jobs is critical.
“Banks will continue to be a vital source of finance but it’s not a one-size-fits-all solution and we’re encouraging growing firms to open their eyes to the broad range of funding options on the market.
“Growing businesses could look to corporate venturing, for example, or to issue retail bonds like Hotel Chocolat did with its innovative chocolate bonds.”
Paul Aitken, chief executive and founder of borro, said: “Today’s report from the CBI provides appetising food for thought for the government and the nation’s lenders and borrowers alike. More needs to be done by the government and industry bodies to help SMEs engage with alternative sources of finance which are being heralded as the solution to much-needed credit.”
Aitken said it is time that alternative forms of finance were considered mainstream as SMEs are the life-blood of the economy and as much as possible should be done to support innovation, development and growth.
borro’s average loan value to SMEs, which currently represent over 60% of its client base, rose 41% last year, from £17,000 to £24,000.
He said: “Our online personal asset-lending model has thrived since borro launched in 2008. We have seen a huge increase in the number of small business owners unlocking finance from valuable and unusual personal assets in order to capitalise on business opportunities.”