The Numbers Behind Alternative Finance Revealed

The highs and lows of the alternative finance industry have been revealed in a new report.

Alternative finance covers equity crowdfunding and peer-to-peer lending.

Cambridge University and financial charity NESTA asked leaders in the market to talk about their businesses and found the greatest fear was alternative finance would suffer brand damage from firms collapsing due to fraud.

Almost six out of 10 crowdfunding platforms voiced their concerns over potential malpractice and fraud within the industry posed one of the largest risks to future growth of the sector.

Online security and attacks by hackers was also a worry for 51% of platforms.

But at the same time, 90% of platforms believed current regulations and industry practice were ‘adequate and appropriate’.

Property is most popular deal

The high point for the market was the level of funding grew to £3.2 billion staked by more than a million investors for nearly 255,000 projects in 2015.

Of this, 12% of the market was for business who could not raise cash from traditional lending sources, while 15.6% was for start-ups.

The report also looked at what entrepreneurs were raising money for and found that property was the popular sector.

More than £700 million was poured into property as debt or equity funding in 2015, said the report.

Much of the money went to small or mid-sized developers to finance residential and commercial property deals.

Explosive expansion

Financial institutions are also dipping their toes into the alternative finance market.

Almost half of crowdfunding platforms reported some institutional activity, while institutions were even more active in peer to peer lending, where they backed a quarter of business lending and a third of consumer borrowing.

Donation crowdfunding exploded in popularity, with an increase of more than 500% from £2 million to £12 million in the year, while equity crowdfunding expanded almost 300% from 384 million in 2014 to £332 million last year.

“The numbers show one thing, the alternative finance market is pushing back boundaries, is growing, fluid and dynamic,” said the report.

“The rate of growth for 2015 was only half that of two years ago, but impressive compared to the mere £267 million raised in 2012. By our reckoning, the industry is on track to burst through the 35 billion mark during 2016.”