Finance · 17 February 2016

Alternative finance taking growing portion of small business lending market

Alternative finance represented 12 per cent of the small business lending market in 2015
The online alternative finance market is taking an increasing percentage of small business lending and investment in UK startups, a new report has found.

Alternative finance platforms accounted for 12 per cent of the small business lending market in 2015, with equity crowdfunding providing 15.6 per cent of total UK startup and venture-stage equity investments.

The report, published by the Cambridge Centre for Alternative Finance and the innovation organisation Nesta, demonstrated that the online alternative finance market nearly doubled in size last year, growing by 84 per cent. However, the rate of growth slowed from 2014, when alternative finance grew by 161 per cent.

although the absolute year-on-year growth rate is slowing down, the alternative finance industry still recorded substantive expansion across almost all models, the report said.

The increasing institutionalisation of alternative finance was highlighted, with around a quarter of all peer-to-peer loans now funded by institutional investors like the government, banks or development organisations like the British Business Bank. The report also identified an increasing trend towards donations-based crowdfunding, alongside a perceived increased risk of fraud and malpractice within the industry.

we should celebrate this massive increase in market share, commented CEO of MarketInvoice, Anil Stocker. Alternative finance is alternative no more, businesses have been under-served and badly-served by banks for decades, it’s no wonder they’re looking for something new.

Referring to the various channels and instruments that have emerged outside of the traditional financial world of regulated banks and capital markets in recent years, alternative finance now includes online marketplace practices like reward-based or equity crowdfunding, as well as peer-to-peer lending, invoice financing and third-party payments. Frequently technology-enabled, the various instruments of alternative finance often include cryptocurrencies like Bitcoin, as well as ‘shadow banking? tools like social impact bonds, mini-bonds and community shares.



Fred Heritage was previously deputy editor at Business Advice. He has a BA in politics and international relations from the University of Kent and an MA in international conflict from Kings College London.