Finance · 11 December 2017

Online alternative finance platforms delivered £3.3bn to small firms in 2016

A total of £3.3bn was lent to small firms from online P2P, crowdfunding and invoice trading platforms in 2016
A total of £3.3bn was lent to small firms from online P2P, crowdfunding and invoice trading platforms in 2016

The value of Britain’s online alternative finance market reached £4.6bn in 2016, new research has found, as growing numbers small business owners find lending opportunities outside of high street banking.

According to an annual report from the Cambridge Centre for Alternative Finance, the value of the alternative finance space increased by 43 per cent between 2015 and 2016, with small business owners benefitting most from new kinds of lending.

The findings also suggested the UK’s entrepreneurs have benefitted most from alternative funding models. At £3.3bn, almost three quarters of finance delivered from alternative models went to startup companies – a 50 per cent increase on the share registered in 2015.

Peer-to-peer (P2P) lending – unprotected investments representing a high risk and high return – saw the greatest growth, accounting for £1.17bn in finance. In 2016, P2P investments accounted for an equivalent of 15 per cent of all lending to small UK business owners by banks.

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Invoice trading, whereby business owners sell individual invoices to investors in order to boost short term cash flow, delivered £452m and grew by 39 per cent.

Breakdown of online alternative finance market in 2016

Lending model Finance provided Year-on-year increase
P2P lending £1.17bn 47 per cent
Property lending £1.15bn 88 per cent
Invoice trading £452m 39 per cent
Equity-based crowdfunding £272m 11 per cent
Reward-based crowdfunding £48m 14 per cent

 

With 33,000 firms accessing finance through alternative platforms in 2016, an increase from the 20,000 in the previous year, awareness seems to be growing in the startup community.

Commenting on the growth of the UK’s online alternative finance market, the report’s author, Bryan Zhang, said the sector had become “an ever more established component of the UK financial landscape”.

“Since 2011, more than £10bn worth of funding has now been intermediated through various online alternative finance platforms in the UK,” Zhang said.

“Online funding channels, such as crowdfunding and peer-to-peer lending, have not only entered common discourse, but have also become embedded in the everyday infrastructure of finance; in many instances, they are now one of the default fundraising and investments channels for businesses, retail investors and institutions.”

Despite overall lending growth, industry consolidation was found to have rapidly increased. As the five largest alternative finance providers accounted for 64 per cent of the market total in 2016, over 35 UK online finance platforms dissolved.

Zhang added: “With equity-based crowdfunding now accounting for 17 per cent of all seed and venture stage equity investment in the UK, and peer-to-peer business lending providing an equivalent of 15 per cent of all new loans lent to small businesses by UK banks, alternative finance has entered the mainstream and is likely here to stay.”

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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