Non-bank lending to small businesses has hit a five-year high, as more enterprises turn to alternative sources of credit such as peer-to-peer lenders and invoice financing.

With traditional bank lending in its fifth year of decline, the UK’s commercial finance brokers say they have arranged £10.5bn of credit for small and medium-sized enterprises in the past year. This marks the highest figure since 2008 and an annual rise of 17 per cent.

Meanwhile, asset-based lenders, who advance money against equipment or invoices, also reported their biggest annual total since 2008, rising 10 per cent to £17.4bn in the year to June.

The data, from industry associations, highlight the shift away from traditional bank lending to small business, which has shrunk by a quarter since 2011. SME funding through leasing and asset finance has more than doubled in the same period, according to the National Association of Commercial Finance Brokers .

Its members also arranged £501m worth of loans through innovative channels such as peer-to-peer lenders, which match individuals to companies that want to borrow, a rise of 80 per cent.

Adam Tyler, chief executive of the finance brokers association, said that while the government’s Funding for Lending and Help to Buy schemes have eased credit conditions in the property market, small businesses were still being neglected by mainstream lenders.

“Alternative finance is providing life support to the sickly SME market and will be vital to give it extra impetus to boost the economic recovery,” he said.

“These figures show that alternative options from leasing and asset finance to peer-to-peer lending are increasingly taking up the slack and plugging a vital gap.”

The commercial finance brokers’ association, which compiled the data from its 1,000-plus members who arrange loans for businesses, will join the British Bankers’ Association to brief MPs on Monday on the use of alternative finance.

A BBA spokesman said banks were working with brokers to help customers gain access to alternative sources of credit. “While banks are open for business there are other ways to get finance. Bank finance is not always right for companies.”

Bank of England figures for the second quarter of 2013 showed that, excluding overdrafts, SMEs paid back £600m more than they borrowed from banks, although gross lending rose slightly to £10.2bn. The BBA said fewer than three in 10 applicants were turned away and total SME bank borrowing stood at £114.9bn.

The Asset Based Finance Association, which represents lenders rather than brokers, said last month that its advances rose from £15.8bn to £17.4bn in the year to June.

Mr Tyler said there was still a lack of awareness among small businesses and their advisers on alternatives to bank loans.

Even after the recent increases, brokers remain far short of the £19.7bn of finance they arranged in 2006-7.

Copyright The Financial Times Limited 2013.