Small businesses need funding to develop and grow, enabling them to make the best of exciting opportunities and meet increased customer demand. The small business financing industry has been changing in recent years, with new options available for these types of businesses to gain access to much needed credit to grow. Here we will explore the main trends that have emerged.

Small businesses are still approaching banks for financing, despite the fact that since the 2008 economic downturn, getting approved for loans has been more challenging. Many small businesses find approaching banks and traditional lenders to be a frustrating process, and according to the British Business Bank in the UK alone, almost 100,000 SMEs equating to £4 billion worth in applications for credit are turned down annually. Writing for the Harvard Business School, Karen Mills and Brayden McCarthy explain that most surveys show that bank credit for small businesses has been on a downward turn since before the global economic recession, and since then this trend has continued. This has led to small and medium sized businesses turning to alternative forms of financing to make up any shortfall.

Alternative forms of lending and investment are also becoming more commonplace. Options that small businesses can consider include crowdfunding and peer to peer investment, among others. Crowdfunding occurs when people use websites such as Kickstarter or Gofundme to find financing, and this is achieved through lots of people on the platform offering small amounts for which they may receive “rewards” in return. Peer to peer investment is possible for both businesses and individuals and is carried out through platforms that help investors to find people to lend to. These types of approaches cut out banks completely. The Economist reports that peer to peer lending in particular has been driven by low interest rates and an inability to gain access to more traditional forms of financing such as banks. The increasing level of comfort with doing business online has also been a driver of this sort of financing. Peer to peer lending is not without its risks, as there are no sure-fire guarantees that investors would be returned all of their money if platforms offering these sorts of services went under.

Investment through crowd funding increased from $880 million in 2010 to $16 billion in 2014, and predictions for the amount crowdfunded in 2015 were estimated at more than $34 billion, according to Forbes. In fact, it has been predicted that crowd funding will surpass venture capital for investment during 2016. Indeed, according to Forbes the World Bank has projected crowdfunding growth to rise to $90 billion by 2020.

Additionally, other innovative forms of small business financing have been introduced, or have made a comeback. Invoice financing, popular throughout the centuries, has experienced significant growth in recent years according to Platform Black. Meanwhile, based on the emergence of government-offered R&D tax credits in many countries, a few innovative companies like Fundsquire have identified ways to help small companies gain access to funding through borrowing against tax credit due. These forms of financing are likely to continue to grow for small businesses into the future. Technology businesses in particular might also consider getting involved with Tech London Advocates. While not a financing organisation, this community is very helpful on all matters relating to technology focused business.