UK innovation agency Nesta says that £1.74 billion will have been raised through alternative finance intermediaries – including crowdfunding, peer-to-peer lending and invoice trading – by the end of 2014, as small businesses and consumers increasingly look beyond the traditional banking sector for loans and capital raising needs.
The fresh data, compiled by Nesta and the University of Cambridge, reveals a growing awareness of the alternative finance market among small businesses and consumers, with the market more than doubling in value year-on-year since 2012. The researchers predict the amount will reach £4.4bn in 2015.
Liam Collins, co-author of the report, says: “These findings shed light on a growing movement that is revolutionising banking, investing and giving by using technology to simplify the links between those who want to invest money and those who need it. With bank lending to SMEs down again this quarter, it’s no wonder that alternative finance is fast becoming an important source of funding for individuals, businesses and organisations who struggle to access finance elsewhere.”
By the end of this year it is expected that the UK alternative finance market will have provided more than £1bn in business finance to over 7000 small and medium enterprises in the UK, the equivalent to 2.4%t of all bank lending to SMEs.
In the last quarter, bank lending to small and medium-sized enterprises was down by £400m, according to the Bank of England’s latest Trends in Lending report.
The Nesta survey shows peer-to-peer business and consumer lending continued to dominate the market with £749m and £547m being lent through the models respectively in 2014. Equity-based crowdfunding, meanwhile, reached £84m, up 201% year on year.
The data is borne out by new arrivals to the market. In its first year of operation, equity crowdfunding house SyndicateRoom raised £10 million from investors, with the average company selling equity of more than £500,000 through the platform.
Goncalo de Vasconcelos, CEO of SyndicateRoom, says: "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."
There is also plenty of room for expansion, with just one-in-nine SMEs, and one-in-seven consumers surveyed by Nesta so far tapping alternative channels.