The future of alternative finance

The future of alternative finance
The future of alternative finance

The report predicts that in the current year, the market will grow to £4.4 billion if the current level of growth remains constant.

Meanwhile, there are a number of factors that suggest that this growth will remain the same. According to the Understanding the Alternative finance Market report, users of such finance methods indicated that they were very likely to use alternative finance methods in the future. Almost half of peer-to-peer lenders also plan on lending more in the coming year, with 86 per cent of lenders being willing to approach alternative finance platforms first even if the bank were to offer similar terms.

In addition to the increased likelihood of receiving funding from alternative finance lenders, there is currently a strong sense of mistrust among the small business community in relation to the banks. Most recently (April 2015) Dame Colette Bowe, of the Banking Standards Review Council, warned that trust in the industry had been "badly damaged" following large-scale insurance mis-selling and the manipulation of the Libor.

She said: “A healthy society and vibrant economy like the UK needs well-run banks and building societies that understand and serve the needs of people in a business.

“From paying household bills to growth finance for business, millions of us rely on the banking system every day. Some 500,000 people across the UK work in this industry.

“But trust in the system has been badly damaged and it’s no surprise that the public expects change after everything that’s happened.

“Banks need to recognise the urgent need to raise their game and build the necessary momentum for change. It won’t happen overnight and it will be an uncomfortable journey.”

Frangos agrees. “There are many reasons for the popularity of alternative finance including the relationships with the banks – and also the fact that banks just aren’t lending and, of course, innovation within the world of finance,” she says. “Alternative finance is an innovative solution that deals with the problems of finance in a creative way.”

Naturally, the wide-spread appeal of the alternative finance sector is that businesses are able to source funding for a variety of purposes from developing new products to generating finance to take on more orders. As a result, there are also variations in the usage and amounts raised by people with the average crowd-sourcing business raising £3,766 from 77 backers, equity based lenders will raise an average of £199,095 from 125 investors.

In tomorrow’s instalment, we take a look at how alternative finance will impact the economy as a whole…