Small and medium-sized businesses (SMBs) need to consider a full range of financing options as they seek organisational growth, it has been suggested.
The Confederation of British Industry (CBI) has urged companies in this sector to consider every funding opportunity available to them - including asset-based lending, equity investment and peer-to-peer lending.
In its new alternative finance guide, 'Ripe for the Picking', the CBI claimed that high-growth medium-sized businesses could be worth up to an additional £20 billion to the economy by 2020.
And with the UK banks being the source of almost 80 per cent of all credit to growing businesses, the body says 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 all of the time, the CBI said.
Katja Hall, chief policy director at the CBI, commented that SMBs are "the backbone of our economy".
"Ensuring they can access the capital they need to grow and create jobs is critical," she stated.
"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."
Ms Hall said growing businesses could look to corporate venturing, for example, or to issue retail bonds.
Vince Cable, Secretary of State for Business, claimed that UK firms 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," he stated.
Mr Cable welcomed the CBI's guide, saying it should help raise awareness of the different types of finance available, and how alternative credit channels can introduce more competition to give SMBs choice.
"The government wants to see a shift in the market structure towards non-bank lending, and through the business bank is deploying £300 million of the £1 billion allocated to the initiative, to invest alongside the private sector in new entrants and the growth of smaller lenders," he stated.
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Posted by Steve Williams