Alternative finance market expanding

The alternative finance market has really taken off in recent years, with the recession meaning that firms are more willing to engage with non-traditional sources of funding in order to access the cash they need.

According to a new report from Nesta carried out with the support of Cambridge and Berkeley University, the UK alternative finance market grew by an impressive 91 per cent between 2012 and 2013, moving from a valuation of £492 million to £939 million.

While it must be pointed out that this is a drop in the ocean when compared to the major banks, the rapid expansion of the sector does represent a major shift in how businesses access investment.

From 2011 to 2013, alternative finance provided £463 million to start-ups and small to medium-sized enterprises, most of which was generated over the last 12 months.

Nesta predicts that the market will grow to £1.6 billion next year and provide £840 million worth of business finance to smaller organisations, underlining the fact that it now should be seen as a viable option against more traditional sources of funding.

Writing in City AM, executive director of research at Nesta Stian Westlake claimed this could be a "revolution" in the financial services sector. However, he admitted t hat challenges still remain in place when it comes to how the market is controlled.

"Most alternative finance providers believe some regulation is needed, to prevent an invasion of fraudulent platforms. But some of the early proposals from the Financial Conduct Authority seem to be heavy-handed," he declared.

Some bankers feel that crowdfunding and peer-to-peer lending is simply a passing enthusiasm brought about by the media criticism of the traditional finance sector following a series of scandals, but Mr Westlake rejected this interpretation of Nesta's research.

"This increasingly seems like wishful thinking. Although there are certainly businesses who have been driven to peer-to-peer lenders because their bank will not lend to them, there is a more fundamental change at work ," he concluded.