According to the insurer’s latest bi-annual SME Pulse, more than one third (36%) of SMEs - equal to 1.8 million UK businesses - plan to invest in their business during the second half of 2014 but many are unaware of the range of finance options available to them, particularly when it comes to alternative finance.
Robert Ledger, head of small business at Aviva, said: “High street banks will always be an important port of call for many SMEs – whether they are at the beginning of setting up a new business, or seeking investment to expand an existing one. However, with the rise of alternative finance options and increasing media focus on schemes such as crowdfunding and peer-to-peer lending, it’s important for small businesses to understand that there are a variety of options open to them outside of traditional finance methods, designed to suit differing business needs.
“The first step is to understand what the finance is for. Decide whether it is to achieve growth or working capital, whether the business has security it can put down and whether the business needs investment and advice. Then look at which option best suits the business needs. If you are unsure the government website www.greatbusiness.gov.uk is a good source of information.”
The survey of 1,500 UK SMEs reveals that one third (33%) of SMEs don’t understand what alternative finance is or know how to take it out. A similar proportion (29%) admit to being altogether unaware of it as a funding option.
Awareness levels are lowest among sole traders, with eight in ten admitting that they didn’t understand or were unaware (84% and 80% respectively).
Just two in ten (19%) SMEs say they have considered using alternative finance as a form of funding; with twice as many (40%) saying they have not considered it as an option because they prefer to deal with their high street bank. Almost three quarters (70%) say that they perceived alternative finance as a riskier option than applying for traditional finance via their bank.
This is despite the benefits of alternative finance reported by many SMEs. Half (51%) of those who have previously applied for alternative finance say that they did so on the basis of better rates and greater flexibility than using a high street bank, and one third (31%) said it was easier to secure alternative finance than getting a loan from the bank.
Despite the increasing profile of alternative financing options such as crowdfunding and peer-to-peer lending, Aviva’s research found that one quarter (25%) feel that there is not enough information available to them about the various funding options.
Ledger added: “Reports in July that the UK economy has returned to pre-crisis levels must hearten many business owners who may have struggled to survive in recent years.
“It is fantastic to see that half of the SMEs we surveyed are still enjoying running their own businesses and particularly promising that 58% are predicting strong or improved growth for the rest of the year.
“This could be an ideal time for SMEs to revisit their business plans to make sure the business is on track and to identify any new opportunities for growth.”
