The alternative finance market is currently booming. By the end of this year the market is expected to be worth £1.74bn. Next year even more rapid growth is expected, and it has been predicted that the market could be worth around £4.4bn by the end of next year.
Types Of Alternative Finance
Nesta, Britain’s innovation foundation, and the University of Cambridge, have conducted the biggest ever study of alternative finance. The recently published Nesta and the University of Cambridge report was supported by PwC and ACCA. The report’s findings indicate a wide variety of ways that alternative finance is being generated. These ways include crowdfunding, invoice trading, and peer-to-peer lending. New ways of direct funding are also becoming particularly prevalent online. While most related providers have only been in existence for about 5 years.
Because of how funding is evolving, new regulation was introduced by the Finance Conduct Authority (FCA) in April. In 2014 so far, alternative finance platforms have been used regarding loans and investments, as well as for donations.
The growth in the alternative finance market has been rapid. As recently as 2012 this market was on £267 million for the whole year, and then it rose sharply by 150% in 2013 to a figure of £666 million.
Though, in the survey, only 9% said that they had so far made use of alternative finance, nearly half were aware of at least one type of alternative finance. Some 58% of consumers surveyed knew about a form of alternative finance, with 14% of those surveyed saying that they had utilised alternative finance, to lend, donate, or to obtain money.
Equity-based crowdfunding, which offers investors the chance to make an investment in either early stage or growth-stage businesses is popular, the survey found, with people between the ages of 40-45. Concerning equity-based crowdfunding, the average age for a fundraiser and investor is 43 and 40 respectively. Around 125 investors are usually involved in funding an equity-based crowdfunding deal.
How SMEs Are Benefiting From Alternative Finance
Small and medium-sized businesses are notably benefiting from the alternative finance market. It is estimated that 7,180 SMEs will have received over a billion pounds in business finance by the end of 2014. By comparison, a Trends in Lending report by the Bank of England shows that lending by banks to SMEs is down considerably, at £400m less. However, much work is still to be done with regards to raising awareness of alternative finance options that are available to SMEs. A study carried out by Aviva Earlier this year revealed that 33% of SMEs surveyed had no knowledge of alternative finance or how it worked. Other notable organisations that have benefited from the growth of alternative finance options include Charities and community organisations.
As the area of alternative funding continues to grow this can only mean that an increasing number of SMEs will benefit in the future, especially as banks continue to have more stringent lending conditions than many of the finance providers in the alternative market.