Britain’s most passionate advocates of alternative finance, from crowdfunding start-ups to micro-financiers, have had a breakthrough year. With political support, the advantages of increasing scale and growing demand for funding in a recovering economy, alternative finance providers have found themselves in the right place at the right time – and the results have been dramatic.
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The amount lent by alternative finance providers reached £939 million in 2013 according to Nesta, the charitable concern that promotes innovation. That’s an increase of 91% on 2012’s total of £492 million (the figure for 2011 was £309 million).
There is no reason why this growth should not continue – and even accelerate. The alternative finance sector now has the support of public policy, with a new regulatory framework for crowdfunding, for example, and speculation that the sector may soon be awarded new tax breaks.
Moreover, Britain’s alternative finance industry is increasingly diverse, with a range of different types of providers that each make significant and increasing contributions to the total pool of funding provided.
Donation-based crowdfunding raised £310 million of alternative finance in the UK over the course of 2013, a 20% increase on last year. The model popularised by sites such as Kickstarter appears to have taken off in the UK.
Zopa was arguably the world’s first ever crowdfunding business and continues to perform strongly in the peer-to-peer lending market. This sector of the industry raised £287 million over 2013 – a huge 107% increase on 2012.
Lead by Funding Circle, the UK firm that has attracted venture capital funding for a major tilt at the US market, peer-to-business lending has grown remarkably quickly during 2013. It raised £193 million over the course of the year 203% more than in 2012.
Invoice finance enables small businesses to cash in the value of unpaid bills, and has become increasingly important during this period of constrained cashflows, particularly since large businesses have got slower at paying their bills. Lead by innovators such as Marketinvoice, the sector raised £97 million this year, an astonishing 487% more than in 2012.
Sites such as Seedrs and Crowdcube are still in their infancy but equity-based crowdfunding has begun to gain traction in the UK, raising £28 million during 2013, 371% more than in 2012.
This is another small but important niche of the alternative finance industry where growth has really accelerated over the past 12 months. These sites raised £20.5 million during 2013, 382% more than in 2012.
Other types of alternative finance – which collectively raised £5 million this year – may also become more mass market in the years ahead. More small businesses have been able to issue debt-based securities over the past year than ever before, while social enterprises are issuing community shares at the fastest rate in their history.
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