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Money doesn’t grow on trees!

For a small business owner the landscape of business funding can be bewildering. Not only that, but there is still an unacceptably high rate of rejection for those small business trying to get a business loan. This is despite a supposed improved availability of credit: The British Business Bank (BBB) recently reported an increase in bank loans of £1.6bn from 2014 to 2015.

So, what is the best financial advice on how to grow a small business?

According to the BBB’s Small Business Finance Markets Report, the UK’s four largest banks still comprise 80% of small business loan lenders. However, the report also found that startups are experiencing a 50 per cent rejection rate when applying for credit and small businesses are also finding it difficult to borrow.

The ease of obtaining business funding from major banks also varies regionally. The report found that 71% of business loans from UK banks are granted to businesses in London and the South East, even though they make up just 34% of the UK business population.

According to Glen Crawford, CEO of Amigo Loans: “It’s a disgrace that the people who keep our society operating, the mobile hairdressers, the wedding photographers, cleaners, cafe owners, mechanics, driving instructors and a whole host of other ambitious sole traders are being alienated by banks.”

Many small businesses are therefore looking at alternative methods of funding. These include:

Overdrafts: According to new research from lender Amigo Loan, over 40% of sole traders have turned to overdrafts to fund their businesses. This research also uncovered the worrying fact that over a million sole traders have been turned down for business finance loans and 6% of these people abandoning their search for business funding after this setback. There are also concerns about the cost of overdrafts, making them a less than ideal source of business funding.

Crowdfunding: There are various methods of crowdfunding which we explored in an earlier blog. This method of raising business funding is growing in popularity, with over 50% of small businesses are now aware of it, as compared to 12% in 2012.

Family and friends: Around 30-40% of businesses are likely to turn to family and friends for financial help for business funding.

Peer to peer (P2P) lending: P2P lending offers exceptionally high interest rates to investors in return for their temporary investment in a business. However there are concerns regarding the stability of this method of financing as much of it is currently not regulated and investments not protected. P2P is likely to come under increasing scrutiny but at the moment many investors may not be fully aware of what they’re getting into and don’t realise that they could end up losing money. Perhaps this is why - despite recent growth in the sector - only a small proportion (around 1%) of small businesses have used P2P lending in the last three years.

All the above illustrates that there is a huge need for reputable business funding in the UK. Alternative lenders that will provide loans for small businesses. Lenders that have the mentality of “how can we say yes” rather than “why we should say no”.

At Fair Business Loans we are proud to say yes to those people who, given the business funding, would have the skills and abilities to know how to grow a small business. Have a look through some of our case studies to see people that we have helped in this way. People like you! If you are struggling to make your way through the strange landscape of business funding then why not get in touch with us at Fair Business Loans to see how we can help you reach your destination.

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