Increasing numbers of small businesses are being forced to turn to alternative methods of finance due to the difficulty of obtaining loans and extension of overdrafts from banks.

Research by CreditPal has confirmed what the majority of SME owners already know - that many businesses are turning on friends and family or selling personal assets to raise finances.
Small businesses were found to have raised £45bn from alternative sources of finance over the last two years

Just over 40% of small and medium-sized firms sought alternative finance in the last 24 months, compared with 35% who applied for funding from a bank or building society.

Small businesses were found to have raised £45bn from alternative sources of finance over the last two years, £22.6bn of which was sought in the last 12 months.

Those sourcing alternative forms of finance have raised £66,624 each on average over the last two years, equating to £2,776 a month.

"We believe we have identified an SME fear factor at play, with companies more likely to seek finance from non-traditional sources because they are scared of even applying for finance from banks and building societies. We desperately need to see a return to traditional lending if the economy is to return to an even keel," said Chris Poll, CEO of CreditPal.