Funding providers competing to provide staffing companies an alternative to the banks have their work cut out because of lack of awareness that other options exist.

So says Anil Stocker, co-founder of Market Invoice, a company that raises invoice finance from a network of international investors.

Yesterday, business secretary Vince Cable set out steps to diversify business finance, by announcing details of an industry-led Taskforce.

According to BIS (the Department for Business, Innovation and Skills), UK businesses have been heavily reliant on banks to raise finance, with the majority of smaller and mid-sized businesses relying solely on bank loans to raise finance, only around 10% of these businesses seeking asset-based finance and fewer than 5% choose bond or mezzanine finance.

“There are exciting innovations emerging that provide alternatives to bank lending. Businesses are selling bonds directly to their customers, missing out the middlemen. And peer-to-peer lending has opened up opportunities for savers to invest directly in the fortunes of UK businesses. I want to investigate and dismantle any barriers to these and future innovations,” says Cable.

Stocker, whose company raises funds against recruiters’ invoices from a group of 25 international asset managers, high net worth individuals and hedge funds, tells Recruiter he welcomes Cable’s announcement.

“We believe that alternative sources of business finance will flourish over the next 5-10 years as the banking sector undergoes structural reform.”

However, he adds “the biggest barrier for faster adoption of emerging financing alternatives is simply awareness. New financing platforms lack the branch infrastructure to distribute their products and many owners and managers of small and medium-sized businesses (SMEs) have not even discovered that alternatives and complements to traditional bank funding do exist”.

Tim Evans, managing director of Boxington Corporate Finance, tells Recruiter that staffing companies’ ability to raise finance from alternative sources depends on the size of the companies seeking funding.

Alternatives, such as funding direct from pension funds and endowment funds that cut out the banking middlemen could be a viable possibility for mid-cap staffing companies with a valuation of £200m plus, he says.

However, he says that pension funds are less likely to be interested in lending direct to SMEs because these are considered as more risky.

“Smaller recruiters are likely to be restricted to existing financing models such as invoice discount and cashflow-based lending,” says Evans.

Kate Sharp, chief executive of the Asset Based Finance Association, tells Recruiter: “There is a broad palate of funding options available, provided by banks and independent financiers, and it is essential for the recruitment industry and other sectors to be able to draw on the strengths of all the types of funding available to UK businesses.”

Colin Cottell investigates the challenges faced in securing finance for recruitment businesses in ’Money’s too tight to mention’ in Recruiter’s 14 December issue.