Raising Finance

Small Business Act could see £2bn increase in alternative finance funding for SMEs

3 min read

20 April 2015

With the Small Business, Enterprise and Employment Act receiving Royal Assent in March, alternativebusinessfunding.co.uk (ABF) has estimated that the bank referral legislation encompassed in the act could result in £2bn more funding being injected into the SME economy after the first year of implementation.

The website, which aims to help SMEs find alternative business funding, said over 100,000 small businesses could be fast-tracked to alternative business funders as a result of the legislation.

This prediction comes alongside an announcement that ABF has 12 new funders joining the portal, reaching a current total of 32. ABF has funded 2,500 businesses through its service, with a ratio of one in three companies receiving funding.

Adam Tavener, chairman of pensionledfunding.com, who led the ABF collaboration, suggested that enforcing the act should be a matter of priority for whichever party ends up in government following May’s general election. “It is vitally important that the party or coalition government elected drives the implementation phase through as quickly as possible. This increase in alternative funding will double the size of the UK’s thriving alternative funding sector,” he added

Looking into the Parliamentary Impact Assessment and The UK Alternative Finance Industry Report 2014, as well as the rules put forward by the Basel Committee on Banking Supervision, ABF has summarised that the initial 100,000 small business funding referrals directed to the alternative funding sector could go on to increase significantly in the future. Basel has insisted that a 300 per cent risk-weight be applied to small business, which could result in trebling the amount of capital that banks must put against a loan.

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The British Bankers’ Association, however, has spoken out against these proposed changes. Quoted in The Times, the lobby group stated that this was “unduly penal” and that Basel’s rules could actually result in banks being incentivised to lend to higher-risk startup businesses as opposed to SMEs.

Tavener, though, believes this could be a chance for alternative funding providers to lend expertise. The majority of ABF funders are not subject to the Basel Solvency Rules. “Although we don’t support the Basel Committees demands on the banks, if enforced, it will clearly increase the number of small businesses declined for finance by the banks, and, as a result of the referral system, these will be redirected to alternative funding providers,” he added.

The 12 new funders joining the ABF collaboration are Capiota, Catalyst Finance, Credit4, Funding Knight, Fundsurfer, Growth Street, HNW Lending, LDF, TradeFin Partners, UK Bond Network, United Kapital and Venture Founders.

Paul Mildenstein, CEO of Liberis, a funder on ABF, suggested that this development will further boost the profile of alternative funding providers as well as reflecting the sector’s increasing importance for SMEs. “The ABF Group has been a principal driver in shaking up the SME finance sector, providing a collaborative and accessible marketplace for borrowers and emerging lenders alike,” he said.

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