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Alternative funding options will remain an integral part of small and medium-sized enterprises’ (SMEs’) financial toolset as credit for them remains constrained, according to two OECD reports.

Financing SMEs and Entepreneurs: An OECD Scoreboard, which assessed access to finance for SMEs from 2007 to 2013 in 34 countries, found that though bank lending is still the main source of finance for small businesses, it still hasn’t recovered to pre-crisis levels.

The report points out that alternative instruments such as crowdfunding and factoring are gaining traction, but warns that high levels of non-performing loans still hamper banks’ willingness to lend to SMEs.

It also found that payment delays and bankruptcies among SMEs were no longer on the rise in 2013.

The second report, titled New approaches to SME and entrepreneurship financing: Broadening the range of instruments looks at the challenges posed by traditional bank finance to innovative and fast-growing SMEs with a higher risk profile.

There is a pressing need to enable small businesses to diversify their funding sources by tapping alternative finance instruments. Angel Gurría, OECD

It concludes that diversified funding sources can better serve the needs of those SMEs at the different stages of their lifecycle, as well as help to mitigate systemic risk.

Alternatives listed in the report include asset-based finance, alternative debt, hybrid instruments, and equity instruments.

However, it points out that in order for SMEs to make full use of these instruments, there is a need to address their finance skills gap, design regulations that balance financial stability, investor protection and the development of innovative financing channels, improve credit assessment through new information structures and increase participation of private actors in SME finance.

“There is a pressing need to enable small businesses to diversify their funding sources by tapping alternative finance instruments,” said OECD secretary general Angel Gurría when presenting the two reports on the margins of the IMF and World Bank meetings that took place last week in Washington D.C.