SMEs are increasingly shunning bank borrowing in favour of alternative sources of funding, according to a new report.

Analysis from the British Business Bank, which supports over £4bn of funding to UK businesses, found in its latest annual report on small business finance that 70% of firms would choose not to borrow from a bank, even if was at the expense of growth.

Indeed, a mere 1.7pc of small firms sought new loans in the first half of 2017, down from 2.9pc in 2012, representing a record low since the report began.

Concurrently, demand for alternative forms of finance surged last year, with a 79% leap in equity investment, 51% increase in peer-to-peer lending and 12% jump in asset finance.

According to Keith Morgan, chief executive of the British Business Bank, the figures point towards a more cautious approach among SMEs as they’ve sought greater control of their finances in the aftermath of the financial crisis. Morgan also cites a healthy growth in cash balances at small firms over the past five years.

The report also highlights the ongoing health of the SME sector and its continued importance to UK plc, with a record number of start-ups launching last year (414,000) and the highest-ever proportion of small businesses in the UK economy.

“Innovative thinking is crucial to any thriving SME so it’s unsurprising to see so many businesses looking for new approaches to managing their funding,” says Ben Jackson, CEO at Oxygen Finance. “We see this first hand with thousands of SMEs who partner with their larger public sector customers on early payment programmes to deliver better cashflow and more stable finances”.