The UK’s alternative finance market is set for major growth as peer-to-peer lending (P2P), invoice trading and crowdfunding are more widely adopted, according to a report from innovation charity Nesta and the University of Cambridge.
Nesta, formerly the National Endowment for Science, Technology and the Arts reports that the market for alternative finance, which last year provided an estimated £666m to UK businesses, should grow to around £1.74bn this year and £4.4bn in 2015.
Alternative finance providers have taken advantage of a gap in the market since the 2008 global financial crisis, as more UK small and medium-sized enterprises (SMEs) complain of problems in accessing funding from the banks and seek alternative sources of credit
“With bank lending to SMEs down again this quarter, it’s no wonder that alternative finance is fast becoming an important source of funding,” said Liam Collins, a researcher at Nesta and co-author on the report, which predicts that over 7,000 UK SMEs will access business financing during 2014 from alternative lenders.
The sector is dominated by peer-to-peer (P2P) lending, where investors give money directly to businesses and consumers, usually through online platforms. P2P will account for £1.3bn in total in 2014, while invoice trading contributes £270m and crowdfunding £84m.
However 42% of survey respondents were apparently unaware of the availability of alternative finance, while fewer than 10% of the surveyed SMEs had approached an alternative platform for finance.
“Such strong and sustained growth is no longer just down to what the banks are not doing – but what the alternative finance sector is doing,” commented Goncalo de Vasconcelos, chief executive (CEO) of equity crowdfunding platform SyndicateRoom.
“Alternative finance may have emerged to fill the void left when bank lending to business dried up, but it has now grown into a mature and diverse sector that many businesses and investors come to before – not after – trying their bank.
“For sophisticated investors seeking strong returns or promising businesses seeking finance, equity crowdfunding is increasingly their first choice, rather than an alternative to the conventional bank model.
“While equity crowdfunding’s democratic credentials are part of its appeal, its potential for high returns is attracting many wealthy investors – more than a fifth of those buying shares this way have an annual income of over £100,000.
“But competition is intense and the market is continuing to innovate – and the UK now has the most advanced crowdfunding environment in the world. With demand from both investors and fundraisers still increasing, alternative finance is here to stay; and will continue to grow even when the conventional credit pipeline unblocks.
“Alternative finance’s success has taken it squarely into the mainstream, and the only question now is at what point will people cease to regard it as ‘alternative’?”
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