The U.K. alternative lending space is broad, with new entrants frequently stepping in. According to data from the Liberum AltFi Volume Index U.K., marketplace lending in the country hit £286.7 million (about $377.3 million) worth of loan originations in the month of June alone. It represents a 32.4 percent growth from June 2015, the third-largest monthly growth spurt recorded on the index.
It's still a far cry from traditional bank loan volumes, however, according to the British Bankers' Association. And while alternative lending tends to grab much of the media action, a new report suggests that marketplace financing remains an under-the-radar industry for many business owners.
Research published by the British Chambers of Commerce and Bibby Financial Services this week said that awareness of all the options to fulfill that appetite is lagging.
Bank overdraft facilities, the traditional kind of lending, was by far the most recognized option for small businesses, with nearly 93 percent of the surveyed small businesses reporting familiarity with this service. Other traditional bank loans, commercial credit cards and leasing/hire purchase financing followed close behind in recognition rankings.
But alternative forms of financing weren't so recognized.
According to the data, only 18.8 percent of businesses were familiar with mezzanine financing, a form of debt financing that enables lenders to take ownership or equity interest in a company if the loan is not repaid.
Angel finance, peer-to-peer funding and trade finance also ranked low on the familiarity range, though more than one-third of survey respondents had some knowledge of these latter financing types.
The conclusions are in stark contrast to a report released last year by Funding Centre, which found that small businesses are buried in alternative lending choices thanks to the "dramatic" growth rate of the industry in the U.K.
"The alternative finance space has grown at a phenomenal rate in the last year, but the sheer number of platforms is now daunting," summarized David Stevenson, Funding Centre founder, when the data was released in April 2015. "Being honest, even a well-informed business could end up spending days just researching all the alternatives online and then figuring out which product works for them."
According to Dr. Adam Marshall, acting director general of the British Chambers of Commerce, what may be more troubling is that small businesses surveyed didn't show much of an appetite for financing, regardless of type.
"The low appetite for finance revealed in this survey, which was undertaken before the EU referendum, is concerning because it implies that many firms were treading water and putting off expansion plans well before the high-profile campaign we've seen in recent months," he said in a statement.
Researchers found that less than half (47.7 percent) of firms surveyed had applied for some kind of financing in the last year.
For the companies that are interested in financing, the process isn't easy. More than one-fifth of SMEs say the availability of financing had declined in the past year, and of the nearly half of businesses that had applied for financing in the last year, 54 percent said they rejected the terms offered because the interest rate was too high. Further, 39 percent said that the collateral required to secure the financing was too high.
Knowing that small businesses are struggling to access financing and that their knowledge of all of their options is low could present an opportunity for the U.K. market, according to Bibby Financial Services Global Chief Executive David Postings.
"Traditional sources of funding still seem to be the first port of call for many SMEs, but there are a growing range of options available, and it's important that businesses consider forms of finance that fit their own requirements," he stated. "At a time of change for the U.K., there's a fantastic opportunity for SMEs to achieve growth by looking beyond traditional channels for specialist finance."