A total of £939 million has been raised through alternative finance intermediaries, such as personal, business and charitable financings, during 2013, innovation charity Nesta says.
In a report put together by Nesta, in collaboration with the University of Cambridge and the University of California, Berkeley, the growth of alternative finance was shown to be 91 per cent since 2012.
The figures mark the first time that the size and growth of the alternative finance market has been mapped, and comes ahead of a consultation by the Financial Conduct Authority (FCA) on regulation.
Further statistics from The Rise of Future Finance report show that the UK alternative finance market provided some £463 million of working capital to more than 5,000 start-ups between 2011 and 2013 – of which £313 million was in 2013.
Peer-to-business lending achieved a notable £193 million in 2013, invoice trading platforms £97 million, equity crowdfunding £28 million, and reward–based crowdfunding £20.5 million.
Going forward, Nesta and the two academic institutions predict that the total will rise to £1.6 billion, meaning £840 million of working capital for start-ups and SMEs.
Liam Collins, policy adviser at Nesta, says that the ‘rapid’ growth and ‘diversity’ of the industry holds promise for the UK economy going forward.
Anil Stocker, co-founder and director at MarketInvoice, tells GrowthBusiness, ‘The report highlights the exciting recent growth of providers like MarketInvoice and the positive impact we’re having on the UK economy, helping to plug the funding gap holding back our SMEs.
‘At the same time though, I believe we’ve only scratched the surface in terms of awareness amongst business owners of the new sources of funding now open to them, and as this changes the uptake of alternative finance should continue to scale.’
Find out more about equity crowdfunding:
Equity-crowdfunding, which involves businesses putting a pitch online and then deciding how much equity to give away in exchange for a set amount of investment capital, grew by 618 per cent between 2012 and 2013. Peer-to-business lending, which is seen as a way for consumers to get better interest rates than those found at high street banks and in ISAs, grew by 211 per cent over the same period.
Alternative finance has experienced a number of important developments during 2013, including a number of rules put forward by the FCA to provide consumer protection when it comes to investment and loan-based crowdfunding.
Speaking to GrowthBusiness, Luke Lang, co-founder of equity crowdfunding platform Funding Circle, says that online marketplaces for finance are ‘growing exponentially’ as the traditional business lending landscape shrinks.
‘Peer-to-peer business lending has redefined the financial landscape and is playing a crucial role in the economic recovery.’
Funding Circle, set up by Meekings alongside Samir Desai and Andrew Mullinger in 2009, has lent in excess of £120 million during 2013 – with £800,000 currently being lent to businesses per day.
Richard Swart, director of research at University of California, Berkeley, says that the UK is leading the way in creating ‘comprehensive and valuable’ data on this new area of finance.’
Infographic on key report findings: