Alternative finance passes £3 billion mark in 2015
The alternative finance market in the UK almost doubled in 2015, according to a new report. Research from the Cambridge Centre for Alternative Finance and Nesta found that the sector grew by 84% over the year to hit £3.2 billion in investments, donations and alternative format loans to business.
Despite this huge increase in overall volume, growth in the alternative finance sector actually slowed from a peak of 161% in 2013. Some areas did continue to grow however, with crowdfunding emerging as 2015’s biggest success story.
Donation-based crowdfunding grew by a massive 500% from £2m in 2014 to £12m in 2015. Equity crowdfunding, meanwhile, grew by 295%. This saw £332 million raised in 2015 compared to £84 million the previous year.
The rise of alternative funding has coincided with a perceived lack of funding for SMEs from the mainstream banks. Bank lending to small and medium sized businesses rose for the first time since the financial crash in 2015 but many businesses still struggled to secure the funding they needed for growth or even survival.
Banks still accounted for the bulk of business lending. 80% of all lending came through the banks and the big four high street banks accounted for 78% of this amount. The total value of business bank loans and overdrafts was estimated at £163 billion by September 2015.
Much of this went to established, medium-sized businesses however. Businesses with fewer than 50 employees still struggled to secure funding and start-ups, defined as businesses less than 5 years old, suffered a 50% rejection rate from the banks.
This can make it particularly difficult for small companies looking to scale up and a lack of access to funding could potentially leave a business facing business restructuringor even insolvency if their situation takes a turn for the worse.
Even alternative funding was unevenly distributed. The British Business Bank’s Small Business Finance Markets Report found that 71% of equity funds went to companies in London and the South East, although these areas accounted for just 34% of the total business population.
By Phil Smith