EACH month seems to bring more unwelcome news for British firms seeking credit. Business lending, which has been falling steadily for four years, dipped below £400 billion ($612 billion) by the beginning of May. That is 20% below its level four years ago. Then, on June 2nd, data showed that a policy intended to funnel cheap cash to firms via the banking system is not offsetting the crunch. Participants in the Funding for Lending Scheme—a group that includes all of the big high-street banks except HSBC—cut credit by £300m in the first quarter of 2013.

Britain’s bruised banking sector leaves anyone looking to set up a new firm or expand an existing one scratching around for cash. Fortunately, there are alternatives to the banks. One option is to go directly to markets, issuing bonds and selling equity stakes. Here firms have done better, raising close to £49 billion in debt and £22 billion in equity in the past four years (see chart). But small businesses struggle to tap these markets. This is a big problem, because outfits with fewer than 250 employees account for 70% of jobs.

New types of lender are starting to fill the gap. Relendex, a peer-to-peer lender, provides an online platform where groups of savers can club together to provide commercial-property mortgages. Anyone willing to invest £5,000 can join the platform, which will start lending next week, providing mortgages starting at £500,000. Relendex aims to be both innovative and stable, say its co-founders, Michael Lynn and Sam Rosen. The exchange will not offer vacant properties; the first auction is for a property with a loan-to-value ratio below 50% and with rental income three times higher than interest payments. The Relendex platform has several advantages. Savers know where their cash is going. They wield considerable power, too. If the borrower gets into trouble, the group of savers (rather than Relendex) votes on whether to grant more time to pay the interest or to foreclose. If it works, borrowers will get a good deal: because Relendex uses an auction model, sought-after properties will be able to access money more cheaply as lenders bid down the rate. In a typical deal borrowers will pay around 6% interest and savers will receive around 5%. Relendex takes a 1% matchmaking fee. Others are reinventing old ideas. Financial firms from London’s 19th-century discount houses to modern pawn shops have always been ready to exchange illiquid assets for cash, for a fee. Borro, a firm set up in the teeth of the financial crisis, extends that idea by providing loans secured against assets (things like fine art, sports cars and wine collections) that have a value of £1,000 or more. Customers can borrow up to 70% of the value of assets. In the 10% of cases where they do not pay back, the asset is sold, Borro takes its share and the remainder goes back to the customer. Borro charges about 5% a month, equivalent to 80% a year. For a long-term loan, this would be pricey. Yet the lender is growing quickly. Close to 60% of its £50m in loans are to small-business owners. The reason is that Borro lends against assets, and does not need to conduct a time-consuming trawl of firms’ books, says Paul Aitken, its founder. The ability to convert assets into cash can mean the difference between snapping up a valuable opportunity—to buy some discounted stock, or a competitor—and missing it. As cashflow improves, bosses return the cash. The typical loan is repaid in three months.

These new forms of lending may persist even when Britain’s banks return to life. Relendex combines two tried-and-tested ideas: syndicated lending, which reduces risk, and auctions, which deliver efficient prices. And it is targeting a genuine problem—a badly gummed-up part of the mortgage market. If it is successful, the big banks, eager to shed property portfolios, may well become customers rather than competitors. Borro provides something different, too. Mr Aitken refers to a next-day decision as his “worst case”—a speed banks cannot match.

But although Britain’s banks may be displaced by these and other innovators in some markets, they will not disappear. Damaged as they are, banks still perform a unique trick that the innovators cannot. The cash Borro lends comes from its long-term investors; Relendex lenders commit for three to five years. In both cases, lenders must sell their stakes to get the cash back. Banks are different. They take instant-access deposits and transform them into long-term loans. They grant borrowers the certainty of a fixed-term mortgage and savers the ability to flip in and out on a whim. This makes banks risky—they are prone to depositor runs—but vital. The innovative lenders are welcome, and may be here to stay, but banks remain the really special bit of finance.