The Importance of… Alternative Finance

The small business alternative finance landscape is an ever changing area, one that is constantly growing in size and is now a significant funding option for businesses seeking the finances required to grow their start up.

Traditionally, a business’ first funding option would be the bank, but with the well reported decline in bank lending, alternative finance companies have entered the market and have firmly made their mark, offering businesses on opposite ends of the scale a greater depth of funding choice.

To make alternative financing’s rapid growth clear, here are the salient findings from a joint report published by the Cambridge Centre for Alternative Finance at the University of Cambridge and UK innovation foundation Nesta, which studied 94 crowdfunding and P2P lending platforms to examine the growth and trends within the UK’s alternative finance sector.

  • In 2015, the alternative finance market grew by 84% to £3.2 billion
  • Institutional investors were behind 32% of loans in P2P consumer lending and 26% of P2P business lending
  • The market’s share of SME lending and investment is rapidly increasing. Alternative finance business lending is 12% of the market for lending to the UK’s small businesses. Equity crowdfunding is 15.6% of total UK seed and venture-stage equity investment
  • 2015’s fastest growing models were donation-based, which saw a 500% growth since 2014 to £12 million, and equity-based crowdfunding, which rose by 295% since 2014 to £332 million

The SME funding landscape is consistently changing shape, with more and more options becoming available to businesses than ever before. Types of alternative finance include crowdfunding, pension funding, business cash advance, angel investment, and much more.

So what benefits do these alternative finance sources bring to your business? Here are three key advantages:

1. It gives you greater choice

SMEs are spoilt for choice with the large array of alternative finance options available. Nesta and the Cambridge Centre for Alternative Finance’s report found that nearly 20,000 SMEs raised alternative finance through online platforms in 2015, with the borrowing total almost reaching £2.2 billion. They also estimated the figure is likely to pass £5 billion this year – proof that the market is growing rapidly, and as it expands, so too will the lending options2.

2. It gives you quick access to finance

Alternative lenders often offer a simpler and quicker lending process as traditional lenders like banks may not be as well-equipped; there’s also less bureaucracy when going through alternative sources, ensuring a considerably smoother and more efficient process.

A recent study by Amicus, a specialist financial services group, into alternative finance, found that many respondents were increasingly turning away from traditional lenders. Amongst many reasons for this were “concerns over slowness around decision-making from mainstream lenders, inflexible lending, and insufficient knowledge and experience as reasons for underperformance.”

3. It gives you a specialist SME service

Alternative finance providers understand the wants and needs of SMEs looking to grow their existing business. They’re experts in what SMEs require. They’re well versed in the challenges faced by SMEs, and will have specialist knowledge in a variety of sectors, ensuring that you couldn’t be in safer hands when it comes to finding the finance that’s critical to the success of your business growth project.


Not sure what finance to access? Why not read the Business Finance Guide from the British Business Bank?

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