Small to medium sized enterprises (SMEs) have been gaining considerable attention in recent years as countless organizations and events have focused on SMEs and their contribution to the world’s economies. The newfound focus on SMEs is driven by their promise of job creation, but also by their growing role as catalysts of innovation, growth and ultimately prosperity.

Access to capital – a primary challenge

All that attention has also highlighted the significant challenges SMEs face, especially in their access to finance on reasonable terms. That is especially true here in the MENA region, where funding of SMEs has been particularly challenging.

High fees and interest rates make traditional financing options prohibitive for most small businesses. Many conventional lenders are either unwilling or unable to take a chance on an SME, leading to a widening funding gap where SMEs constitute up to 90% of registered businesses in the UAE, but only account for 3% to 4% of bank finance.

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A critical need for alternative sources of funding

In simple terms, most SMEs have a difficult time funding their growth, hindering their ability to employ workers and to fuel an economy. There is no question that there is a critical need for alternative sources of funding to serve a particularly under-served sector of the economy.

This has created fertile ground for Peer-to-Peer (P2P) finance, which has rapidly emerged as a popular financing alternative that is able to provide faster access to flexible funding at attractive rates.

[Related: Beyond banks: Where else to get your SME funding]

Peer-to-Peer finance – a novel way of raising money

P2P finance is a simple, novel way of raising money using the technology of crowdfunding, where a large number of people contribute a small amount of money individually to fund a company or project.

[Related: Raising capital: Is crowdfunding the right option for you?The importance of cash flow for start-ups]

On P2P platforms, individual investors have to bid during an auction to finance the businesses on the “marketplace”, which drives the cost of finance down so the SME receives the lowest blended average rate that’s offered by the investor community.

The innovative technology of crowdfunding helps to significantly reduce the cost by cutting out the middle man, allowing investors to get a better return on their investment and businesses have access to a lowers cost finance.

Quite simply, it is a win-win for everyone.

Article written by Craig Moore – Founder & CEO of Beehive Group – a DMCC licensed peer-to-peer financing platform launched in the UAE in November 2014. He oversees the overall strategic direction and manages the day-to-day operations of Beehive which focuses on helping businesses  get financing  from individual investors.