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Alternative lending helping UK SMEs grow

Jun 10, 2013 Simon Williams

Entrepreneur Norman Perera opened a dry cleaner in October 2012. Despite the United Kingdom's sluggish economy, he was ready to open up a second location very quickly, This Is Money reported.

Although his company experienced immediate success, no financial institution was willing to lend to Perera.

"The banks just don't want to know if you are a young firm, even if you have the potential to grow quickly," he recently told This Is Money.

This was not good news for Business Secretary Vince Cable and the Bank of England, whose now nearly 2-year-old Funding for Lending Scheme has barely had an impact on short term lending to small and medium-sized enterprises (SMEs).

"There are many businesses that the banks have no interest in lending to, either because of the sector they are in, or because they are very young," Marc Glazer, head of Boost, told the news outlet.

On a brighter note, the British economy is showing some moderate signs of recovery, according to The Guardian. Consumer spending is rising, hiring is increasing and overall business success is rebounding.

However, startups and SMEs that are hoping to take that next step forward still don't have a very good chance of securing a loan from banks or financial institutions. Fortunately for them, the rising demand for funding has prompted the alternative lending sector to emerge.

In fact, one such lender plans to dish out £25 million in the next year, reported This Is Money, particularly to smaller companies like Perera's. Glazer said that rather than measuring only traditional credit scores, SMEs will be judged by "trading history and potential growth."

Meanwhile, other alternative lenders are using Payment Reporting Builds Credit scoring measures, which look at financial factors such as a company's ability to pay utility bills on time. These methods have made funding available to an uncountable number of British SMEs.