The growing popularity of alternative lending platforms and equity crowdfunding as a route to finance helped drive the total industry for ‘alt’ finance to £3.2bn in the UK last year. That’s an 84% increase over 2014, pointing to the growing demand – and provision of – financing from non-traditional routes for businesses and consumers.
While that growth rate has actually slowed from the rate of 161% between 2013 and 2014 – it’s still a hefty £1.46bn uptick. The numbers come from ‘Pushing Boundaries: the 2015 UK Alternative Finance Industry Report’, the latest study published by the Cambridge Centre for Alternative Finance, part of the University of Cambridge’s Judge Business School; UK charity for innovation Nesta, accountancy firm KPMG and the Chicago-based investor in education CME Group Foundation.
Numbers at a glance
Among other key findings of the 2015 report:
• A total of 1.09m people invested, donated or lent via alternative finance platforms in the UK in 2015.
• In all 254,721 individuals, projects, not-for-profits and businesses raised finance via alternative finance models.
• An increased share of the alt finance market is for small business lending and start-up investment. Equity-based crowdfunding now represents 15.6% of total UK seed and venture-stage equity investment.
• Fastest-growing models are donation-based crowdfunding – up 507% from £2m in 2004 to £12m in 2015 – and equity-based crowdfunding, up 295% in the same period from £84m to £332m.
Bigger pie, bigger slices
What’s notable is that business customers are taking a bigger slice of the pie. Last year around 20,000 small to medium enterprises (SMEs) picked up a total of £2.2bn in alternative funding, according to the study. Unsurprisingly, lending made up the biggest chunk of that financing, with SMEs picking up £1.82bn worth of alternative loans.
The report estimates that peer-to-peer (P2P) businesses such as Funding Circle provided the equivalent of just under 14% of new bank loans to small businesses in the UK last year. Another key trend is that institutional investors are climbing aboard, especially in the hotly-tipped P2P lending space. An estimated 32% of loans to consumers and 26% of loans made to businesses in 2015 came from institutional pockets.
Meanwhile, anyone keeping their ear to the ground in London’s start-up community won’t be surprised to hear that real estate is the single most popular sector for online alternative investments and loans. The report estimates that combined debt and equity funding in this space hit £700m last year; a trend set to continue as digital real estate businesses continue to thrive.
“The new domination of real estate as the most popular asset is no surprise for the UK, but the bank-scale market share of lending to SMEs is remarkable and hard evidence of the vital support alternative finance is to the UK’s small businesses to vital to the recovery,” says Bruce Davis, co-founder and managing director of P2P platform Abundance. “Similarly, the increasing amount of money being invested through the zone by institutions alongside the public is also an encouraging sign of credibility and substance.
“What is needed now is equivalent analysis of the benefits to lenders, investors and donators, to prove what a positive difference the zone is making to those who use it.
Equity-based crowdfunding is a sector that the UK has made a name for itself in, in large part due to the friendlier regulation of companies like Seedrs and Crowdcube, than there was in the US until recently. However, the Securities and Exchange Commission relaxed regulation late last year, encouraging Seedrs to plan a US launch for its platform.
A recent report by alternative finance education and advisory firm Intelligent Partnership forecast that the UK’s alt finance industry could be worth over £12bn a year by 2020.
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