Friday 14th November, 2014

According to research by Nesta, the UK’s innovation foundation, and the University of Cambridge, £1.74bn will have been raised through alternative finance intermediaries – including crowdfunding, peer-to-peer lending and invoice trading by the end of 2014.

Alternative finance covers a variety of new financing models which connect people seeking funds directly with funders, often via online platforms. Regulation of parts of the industry was introduced by the Financial Conduct Authority (FCA) in April this year, and in October the Treasury launched a consultation on a proposal for a peer-to-peer lending ISA.

In the first three quarters of 2014, alternative finance platforms facilitated loans, investments and donations worth £1.2bn, with the amount predicted to reach £1.74bn by the end of the year. The researchers predict the amount will reach £4.4bn in 2015.

By the end of the year it is expected that the UK alternative finance market will have provided more than £1bn in business finance to over 7,000 UK small and medium enterprises, the equivalent to 2.4 per cent of all bank lending to SMEs.

44 per cent of SMEs surveyed were familiar with at least one type of alternative finance, but just nine per cent had approached an alternative platform for finance.

Liam Collins, co-author on the report, said: "The UK is leading the way globally, and with significant potential for the market to expand it won’t be long before we see alternative finance moving into the mainstream."