Alternative finance routes for SMEs

27th February 2019

UK Finance this week launched a national campaign encouraging small and medium-sized enterprises (SMEs) to prepare for the potential changes and opportunities brought about by the UK’s departure from the EU. The “Let’s Talk Business” campaign, supported by the Federation of Small Businesses (FSB), British Chambers of Commerce (BCC) and the Confederation of British Industry (CBI), encourages SMEs to look into alternative finance options when traditional funding options fall short.

Alternative finance has become a hugely important route of funding for small businesses in the UK. Banks are more reluctant than ever to loan to businesses seen as higher risk, or without asset backing. The Enterprise Investment Scheme will be as important as any other in helping SMEs seize opportunities to grow and scale. Alongside equity we are also seeing a trend of increased focus on debt financing. IW Capital’s secured debt fund offers businesses a way to provide finance without dilution of control. Both debt and equity provide a mutually beneficial funding route for investors and businesses alike.

Equity based alternative finance such as the Enterprise Investment Scheme is a key route of finance for SMEs looking for investment. EIS has helped 27,905 companies receive investment since its introduction in 1993-94 and has raised over £18 billion for these companies since its introduction. There is no doubt that it has contributed massively to the strength of the UK SME arena at this moment. It has become a key part of the SME growth landscape in the last 25 years and from the updates and additions that the Government continues to apply, it is clear that it will continue to be a large part of the Government’s plans moving forward into a transformative period for the UK’s economy.

The tax efficiency of EIS means that it is not only a welcome route of funding for SMEs but hugely attractive to investors who are looking to support small businesses in the UK that are considered higher risk. The loss relief also means that the risk is balanced, allowing more investment to come to those business not backed by assets who banks will not lend to.

Alongside equity options, SMEs that are looking towards private investment are additionally exploring debt options as a possibility. These often provide more nimble and speedier finance than that of traditional lenders. IW Capital have recently launched their debt fund to provide for this type of funding to SMEs, whilst simultaneously providing attractive investment opportunities.

Our offering not only allows businesses to secure funding at rates that would otherwise be unavailable from most traditional banks or lenders, but also gives investors the opportunity to make the most of their capital in a time of historically low interest rates. These new innovative ways of securing alternative finance will surely be a prominent part of the Government’s industrial strategy for those that have founded their businesses upon intellectual property and new technology.