As a concept, ‘alternative finance’ encompasses any way of raising finance without using the traditional methods of banking. Potential funders and those looking for funding are connected via online sites, websites or specialist brokers.
By the end of 2014 the value of the alternative finance market had doubled year-on-year. Although it was worth £267 million in 2012, its value rose from £666 million in 2013 to £1.74 billion by the end of 2014.
Businesses in the UK are increasingly realising the potential that alternative finance can offer them. Currently the UK’s alternative finance industry makes up nearly 75 per cent of the EU’s alternative finance sector as a whole. Particularly since the recession it has allowed individuals a tighter control over their money - and more importantly how it gets spent.
In addition, alternative finance methods often open business opportunities to projects that may otherwise not be approved for traditional funding – either because the banks feel that the company ethos is too risky, or because the entrepreneur may appear to have a weak credit rating.
Natasha Frangos, who heads up the creative and technology team for Hays McIntyre, says: “We work with a lot of fast growing clients who are always looking to raise funds across a wide range of platforms.
“The alternative finance sector has just transformed over the past couple of years. There are now some regulations around it and it is becoming a real option for those looking to raise finance. It’s not just the start-ups but you’re also seeing more established businesses going there and using it.
“The reason why they are doing this is because it first of all broadens the amount of investors that you can shout about your business to, it simplifies funding making it more of a democratic process. It’s not just restricted to high-net worth individuals but has a much broader appeal.
“That means that it is a way for businesses to engage with those individuals.”
In tomorrow’s instalment in this series, we take a look at what the future holds for the alternative finance industry…