Raising funds is one major challenge for the SME. However, it seems that raising awareness of alternative finance options available to SMEs is the major challenge of the AltFi platforms that could provide them with these funds.
Recent survey data from UK bond Network shows that 42% of SMEs are not aware of the alternative finance options available to them.
Businesses with annual revenues below £1.1 million are worryingly being left in the dark when it comes to understanding the financial options they have at their disposal.
“When we asked respondents where they’d first heard about alternative finance, we became aware of a worrying discrepancy in awareness between SMEs with higher and lower annual revenues,” says Christopher Maule on the UK Bond Network blog.
Just 15% of businesses with a revenue over £1.1 million say they aren’t aware of alternative finance, as opposed to 42% of smaller firms.
Maul continues: “When you consider that peer-to-business lenders have raised over £670 million to date in 2014, this lack of understanding of alternative finance could be having a serious impact on some SMEs, preventing them from growing, purchasing necessary equipment or reversing cash-flow issues.
“Looking at the survey results, there’s a clear correlation between understanding alternative finance, willingness to use it and a positive attitude towards the opportunities it provides.”
The reason for such low awareness can possibly be attributed to the banks, who have of course been the go-to financers for hundreds and hundreds of years.
“A main reason for low awareness of alternative lenders is simply the size of the large banks, and the shadow that they cast across the market,” said John Allan, National Chairman for the Federation of Small Businesses (FSB) on the real business blog.
“Businesses instinctively turn to where they bank for finance in the first instance, whereas these challengers are comparatively small and often struggle to raise their profiles alongside huge institutions with established relationships.”
Government legislation that is in place to help match SMEs rejected for finance with alternative lenders will go some way towards increasing awareness, but AltFi platforms will do well not to rely on this alone.
UK Bond Network offers the following advice:
“Given the large percentage of businesses who would seek advice from an accountant or professional advisor, there’s an opportunity for alternative finance providers to build relationships with relevant industry bodies. This would be mutually beneficial; enabling financial professionals to give better advice to their clients while creating a pool of informed customers for platforms.”