UK government dishing out funding to alternative lenders
Mar 27, 2013 Simon Williams
The Bank of England's Funding for Lending Scheme (FLS) has been widely criticized in recent months, with experts and analysts declaring that it failed to spark small and medium-sized enterprise (SME) growth.
Determined not to let the FLS initiative fail after investing £80 billion in the project, the government is increasingly looking toward other options - notably alternative short term lenders.
"A lack of access to finance is still choking off too many small businesses, preventing them from growing, taking on new staff or investing in new equipment," said Business Secretary Vince Cable, according to Credit Today.
United States-based SMEs have relied heavily on alternative lenders over the past few years, and the results have been overwhelmingly positive. Following that lead, the United Kingdom has decided to invest more in these methods - starting with the government's latest plan, the Business Finance Partnership (BFP).
The government will deploy more than £30 million to three alternative lending firms, all of which plan to raise additional capital on their own from private companies. That money will then go toward SMEs in need of funding.
"Today's £30 million announcement is an important boost for non-traditional lenders with creative and innovative solutions," Cable said. "It will increase competition and create a more diverse and balanced market for business lending."
Alternative lenders are valuable because they often use different scoring methods than banks and credit unions to determine whether or not to lend to companies. One of those measures includes Payment Reporting Builds Credit, which calculates scores based factors like a firm's past ability to pay utility bills on time.
The BFP will promote different types of alternative lending, such as online funding platforms. Web-based loans have grown increasingly popular because of their convenience. SME owners can apply for funding without leaving the office, and in certain cases, they can receive those loans within 24 hours.