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The alternative finance sector is developing fast, not just in terms of participants, but also through an ever-broadening range of products and services.
Whilst this has to be a good thing – after all, a fully functioning market should offer choice – one of the challenges we face is effective communication of all the options available. A business looking for something as important as finance must be able to identify the right provider and the best product to match their particular circumstances.
Alternative finance is a concept that is still relatively new, perhaps even alien to many, but especially to our vital community of SMEs – those enterprises that are doing so much to help haul the UK out of the mire.
If they are to succeed, access to finance is crucial. Knowing where to secure appropriate funding and on the right terms is part of an education process which has been set in motion and must be stepped up if the shift away from traditional sources of finance is to be permanent.
From our own perspective, Credit4 has not been created to provide standard debt finance to any businesses that has been unable to secure it from, say, one of the High Street banks. Our target market focuses on growth companies, those whose owners have the ambition to expand and develop their idea. We are just as keen to grow as they are, but creating awareness of our proposition remains a challenge.
The current Government has done a great deal to encourage the alternative finance sector through recent legislation which, on the one hand, helps SMEs to raise the finance they need and, on the other, encourages entrepreneurial investors to put in some of their money. They have also widened the appeal to the general public – for example, through tax shelter on a proportion of investment income, through allowing losses incurred to be offset against gains and through the promised introduction of a new class of ISA.
All are important and welcome initiatives, but must be built on if businesses are to be given a fair chance of realising their growth aspirations.
It is imperative that the good work done to date continues on delivery channels that will help SMEs understand the choices that are available to them and to differentiate between the various alternatives.
The arrival of alternative finance aggregators, such as ABF, has to be a step in the right direction, if only because it means that those looking for finance will be able to navigate around one site to explore, understand and compare their options rather than face the prospect of trawling around dozens to arrive at the same destination.
There is, however, much to be done in this area, by both companies that are developing these sites and the lenders that populate them. Professional advisers and finance brokers, too, have a critically important role to play as they will be able to act as a filter for their clients seeking funds for expansion. A joined up approach from all those involved in this dynamic market is fundamental.
The winds are set fair for the alternative finance industry to mature and to lay down some sensible foundations on which to build. The other hope is that any new Government after the May election has the nous to maintain the momentum of a revolution that benefits everyone.
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