Thursday 11 August 2016 1:00 am

How small firms are increasingly turning away from traditional lenders for funding

Small businesses are increasingly being drawn to direct lending platforms, a new report has suggested.

The Centre for Economics and Business Research (CEBR) report, commissioned by peer-to-peer (P2P) lender Funding Circle, found that direct lending to businesses at the beginning of 2016 was up 50 per cent year on year.

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The CEBR said direct lending is “accounting for a growing proportion of capital raised by businesses”.

“In the second quarter of this year, close to one in 10 small firms applying for credit applied for funds from a direct lending platform,” the report said.

“These trends look set to continue further over the coming years, especially if an economic slowdown over the next couple of years translates into traditional channels being less willing to lend to creditworthy businesses due to their own sectoral or regional credit limits. Some time ago this would have meant that these businesses would have nowhere to turn, but now, direct lending is filling this gap, giving small business owners more choice and enhancing competition in the market.”

The report used evidence from Funding Circle to examine how the lending landscape for small businesses has changed since 2010.

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The researchers estimated that Funding Circle specifically has boosted the UK economy by £2.7bn since 2010, helping more than 15,000 businesses access finance and creating around 40,000 jobs.

Scott Corfe, director at the CEBR, said: “Since the financial crisis, UK businesses have increasingly turned to non-bank lending to raise the funds they need to invest, hire new staff and expand to new markets. Companies such as Funding Circle are driving billions of pounds of economic activity and generating tens of thousands of jobs, something that’s set to grow rapidly as the financial landscape continues to evolve.”