Bank lending drying up in UK, so alternatives emerge as viable option

What little hope remained that the Funding for Lending Scheme (FLS) would revive the British economy has largely flattened in recent weeks, as varying reports have revealed that short term lending by banks has dried up.

"It is the Bank's drive to raise capital ratios that is holding back lending," said James Barty, author of a recent report by the Policy Exchange, according to The Telegraph. "The desire to gold plate our banks is actually creating a lead weight for the economy."

The Policy Exchange study found that since the financial crisis, U.K. lending has decreased approximately £10 billion per year. The report cited the increased restrictions on banks as the culprit behind the stagnating loans.

In a recent blog post for SmallBusiness, MarketInvoice co-founder Anil Stocker highlighted the emergence of the alternative finance sector. With small and medium-sized enterprises in desperate need of loans - Stocker cited a Breeden Report, which projected a £191 billion lending gap between now and 2017 - different methods are inevitably going to gain traction.

Many alternative lenders employ Payment Reporting Builds Credit scoring methods, which have made loans available to a higher percentage of businesses. From peer-to-peer lending to online funding, these strategies could soon be the norm in the United Kingdom.