Managing director Ian Cass said members should consider options such as funding from challenger banks, crowdfunding or pension-led funding to bolster their business’ finances because the more traditional ways were “not right for everyone”.
The comments came as the organisation launched alternative finance portal, Funder Finder, to help businesses find suitable funding. It also teamed up with Close Brothers, which provides specialist business finance.
Cass said the problem was many firms seem reluctant to research the market for the best deals for them and were sticking mainly to their local high street banks. Others were simply ”unaware” of where to find alternative options.
He said: “There has been this story ongoing since the crash that the banks need to get more money out and make more cash available to businesses to grow.
“We are saying businesses need to start looking at other options, take a bit more control, realise there are options out there that may be more relevant to them, than just the banks.”
The Department of Business Innovation and Skills’s small business survey, published in May, showed 22% of SME employers saw access to finance as a major problem in 2015.
It also showed about a third of business owners considered they were strong when it came to obtaining finance and 19% reported that they were poor. By comparison, in 2012 18% reported they were strong, while 42% said their prospects were weak.
Of the businesses surveyed at the time 81% said they had found the finance they were looking for and 8% had not.
As reasons for not accessing finance the majority, or 53%, stated they did not want to take on additional risk; a large group also thought it would be too expensive at 45%; and a further third thought they would be rejected. A fifth of those asked said they did not know where to find the appropriate finance.
Pressing businesses to become more proactive on the issue, Cass referred to the Governor of the Bank of England’s statement in the latest Financial Stability Report that ”the determinant of credit growth in the economy will be credit demand as opposed to constraints over credit supply”.
He also pointed to Small Firms Minister Anna Soubry, who had recently said there was sufficient access to finance for small businesses but that businesses were held back by a limited awareness of alternative finance providers and an over-reliance on local high street banks.
However, bank lending is considered more secure than its unconventional alternatives, such as crowdfunding, which may seem too risky for some.
There are two types of regulated crowdfunding, both largely run on web platforms. Peer-to-peer ending, or loan-based crowdfunding allows consumers to lend money in return for interest payments on the loan and eventual capital repayment. With investment-based crowdfunding, customers buy shares or debentures directly or indirectly in businesses.
In July the Financial Conduct Authority said it was looking at tightening its grip on the consumer-side of the sector, saying it was concerned about consumer protection in the current market.
In February it had already accused investment and loan-based platforms of “downplaying important information” and failing to provide a sufficient indication of risk to consumers.
Pension-led funding, whereby business owners release some of their pension funds early to fund the growth of their business, also carries risks, as a person’s own retirement is put on the line.
Cass said: “There is risk in all these things but we are saying there are more options out there and its worth looking at them. There is no one size fits all.”