Three quarters of institutional investors believe there will be a growing interest in investing in the alternative finance market over the next two years, as the sector is predicted to continue offering attractive risk-adjusted returns.
Research among European institutional investors, carried out by lending solutions provider Amicus, revealed they expect the alternative lending sector to grow by 23 per cent over the next year – driven by the demand for expansion finances among small businesses.
A study conducted among 111 pan-European institutional professions found that 74 per cent felt that the growth of alternative non-bank finance could increase the resilience of the financial system by lessening the burden on banks. Nearly two-thirds thought that UK and European small businesses were too reliant on traditional bank finance.
John Jenkins, CEO of Amicus, said: “As the economy continues to recover, institutional investors see a strong opportunity for the capital markets to play a bigger role in financing SMEs, which continue to face capital constraints due to bank deleveraging.”
He added that “institutions increasingly recognise they can generate attractive returns through investing in alternative finance without taking on large risks.”
This covers crowdsourcing finance, P2P lending, cash flow and invoice finance, property finance such as bridging loans and commercial mortgages, and asset finance like business equipment.
Jenkins said: “We are seeing a high level of interest from investors looking for exposure to our short-term bridging loans secured against UK residential and commercial property.” Earlier in 2015, Lloyds Bank MD of mid-markets and SME banking Tim Hinton agreed with the sentiment, saying that while alternative forms of finance were helping ease pressure on banks, there was still a “long way to go”.
Banks were finding it easier to support smaller businesses as corporate deposits rose faster than loans, but Hinton said equity funding options needed to help out more, as lending figures didn’t provide the whole picture in terms of outflows.
“Gross lending is growing, but to even keep net lending flat you have to lend £1bn,” he said.
As the economy recovers and confidence develops, the UK’s financial set-up is seeing change and a move away from bank debt, but Amicus research indicated that investors would feel even more positively should the growth of alternative finance prosper – helping the health of the financial system for the coming years.
Offerings such as the government-owned British Business Bank sprung up in the wake of the financial crisis, in an effort to increase the supply of finance available to smaller businesses where markets don’t work so well, and provide greater scope in options.
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