SMEs could be missing out on new funding options due to a lack of awareness and understanding, new research suggest.

According to Aviva’s latest bi-annual SME Pulse, 36% of SMEs – equal to 1.8 million UK businesses – plan to invest in their business during the second half of 2014 but many are unaware of the range of finance options available to them, particularly when it comes to alternative finance.

The survey of 1,500 UK SMEs reveals that 33% of SMEs don’t understand what alternative finance is or know how to take it out. Meanwhile, 29% admit to being altogether unaware of it as a funding option.

Awareness levels are lowest among sole traders, with eight in ten admitting that they didn’t understand or were unaware (84% and 80% respectively).

Only 19% of SMEs say they have considered using alternative finance as a form of funding, with 40% saying they have not considered it as an option because they prefer to deal with their high street bank. 70% say that they perceived alternative finance as a riskier option than applying for traditional finance via their bank.

This is despite the benefits of alternative finance reported by many SMEs. 51% of those who have previously applied for alternative finance say that they did so on the basis of better rates and greater flexibility than using a high street bank, and 31% said it was easier to secure alternative finance than getting a loan from the bank.

What types of alternative finance are SMEs applying for? The most popular:

1) A business loan or grant (28%)
2) Peer-to-peer funding (27%)
3) Investment or equity funding (26%)
4) Money transfer (20%)
5) Asset based finance (19%)
6) Family loan/investment (17%)

Despite the increasing profile of alternative financing options such as crowdfunding and peer-to-peer lending, Aviva’s research found that 25% feel that there is not enough information available to them about the various funding options.

Robert Ledger, head of small business at Aviva, said: “High street banks will always be an important port of call for many SMEs – whether they are at the beginning of setting up a new business, or seeking investment to expand an existing one.

“However, with the rise of alternative finance options and increasing media focus on schemes such as crowdfunding and peer-to-peer lending, it’s important for small businesses to understand that there are a variety of options open to them outside of traditional finance methods, designed to suit differing business needs.”