Alternative finance breaks £3 billion mark

The alternative finance market provided more than £3 billion in funding last year, according to a new report.

The study, by the University of Cambridge and financial charity NESTA, reported that the level of funding provided by the sector in 2015 was £3.2 billion. This was staked by over a million investors for almost 255,000 projects and businesses via funding models including equity crowdfunding and peer-to-peer lending.

SMEs were the biggest beneficiaries, with 20,000 raising around £2.2 billion between them – mostly via digital platforms.

Equity crowdfunding had grown by almost 300%, from £84 million in 2014 to £332 million last year. This area now represents 15% of all UK seed and venture funding. Donation crowdfunding – while still a relatively small part of the market – increased by more than 500%, growing from £2 million in 2014 to £12 million in 2015.

The sector receiving the most money from alternative funding sources was property. This area accounted for more than £700 million, with much of the funding going to small and medium-sized developers to finance residential and commercial property deals.

The overall rate of growth had slowed but compared to 2014 but the total amount of funding has grown massively over the past few years. In 2012 the alternative finance market raised just £267 million. The report also estimates that the industry will “burst through the £3.5 billion mark” during 2016.

There are a number of reasons why the market has grown so rapidly. Many SMEs and start-ups have started to explore alternative finance options after failing to secure funding through traditional avenues such as bank business loans. This does not always provide a guaranteed solution however.

In 2015, 12% of the alternative finance market’s total funding went to existing businesses who could not raise money from traditional lending sources. 15.6% of the market went to start-ups.

Some traditional lenders and other major financial institutions are also starting to venture into alternative funding. Large institutions were behind almost a third (32%) of alternative finance consumer lending and around a quarter (26%) of business lending.

By Phil Smith

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