The report from charity Nesta and the University of Cambridge said alternative finance to businesses and consumers was set to hit £1.74 billion in 2014, before jumping to £4.4 billion in 2015. The market totaled around £666 million last year.
A raft of finance providers have sprung up in the wake of the financial crisis when banks cut back on lending to SMEs, forcing them to look for alternative sources of credit. With this set to more than double next year, the study indicates growing levels of confidence in a sector that is relatively new, with the majority of providers having been founded in the last five years.
Liam Collins, co-author of the Nesta report, said:
“These findings shed light on a growing movement that is revolutionising banking, investing and giving by using technology to simplify the links between those who want to invest money and those who need it. With bank lending to SMEs down again this quarter, it’s no wonder that alternative finance is fast becoming an important source of funding for individuals, businesses and organisations who struggle to access finance elsewhere.
“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.”
By the end of 2014, it is expected that alternative British lenders will have provided more than £1 billion in business finance to over 7,000 SMEs during the year - or 2.4% of all bank lending to such companies. This proportion set to increase further as bank lending continues to fall.
Nesta’s study found peer-to-peer business and consumer lending continued to dominate the market, P2P will account for 1.3 billion pounds in total in 2014, while invoice trading will pull in 270 million pounds and crowdfunding 84 million pounds - a 201% increase on last year.
However the study found that alternative finance remains off the radar for almost half the people in Britain, with 42% unaware of it. Fewer than 10% of the surveyed SMEs had approached an alternative platform for finance.
Goncalo de Vasconcelos, CEO of the equity crowdfunding platform SyndicateRoom, comments:
"Such strong and sustained growth is no longer just down to what the banks are not doing - but what the alternative finance sector is doing.
"Alternative finance may have emerged to fill the void left when bank lending to business dried up, but it has now grown into a mature and diverse sector that many businesses and investors come to before - not after - trying their bank.
"For sophisticated investors seeking strong returns or promising businesses seeking finance, equity crowdfunding is increasingly their first choice, rather than an alternative to the conventional bank model.
"While equity crowdfunding's democratic credentials are part of its appeal, its potential for high returns is attracting many wealthy investors - more than a fifth of those buying shares this way have an annual income of over £100,000.
"But competition is intense and the market is continuing to innovate - and the UK now has the most advanced crowdfunding environment in the world. With demand from both investors and fundraisers still increasing, alternative finance is here to stay; and will continue to grow even when the conventional credit pipeline unblocks.
"Alternative finance's success has taken it squarely into the mainstream, and the only question now is at what point will people cease to regard it as 'alternative'?"
