This is a guest post by Dr. Robyn Klingler-Vidra, Senior Research Fellow.
Nesta’s November 2014 report on “Understanding Alternative Finance”, authored by Peter Baeck, Liam Collins and Bryan Zhang, provides a comprehensive map and assessment of the alternative finance sources available to SMEs in the UK. Importantly, the study identifies alternative finance’s users, providers and its socio-economic impact. It provides important insights into alternative finance’s remarkable volume growth – to a reported £2.74 billion in 2014 – and the increasing breadth of the sector – in terms of new forms and the people and organizations providing and using alternative finance. According to the report’s delineation, Alternative Finance can be understood in terms of nine categories:
In line with the trend of using infographics, the report includes a brilliant infographic (page 10) with plenty of interesting statistics on the average size of funds raised through these various means, as well as each arena’s growth in recent years. While Peer to Peer (P2P) business lending is the largest category in 2014 (producing £749 million), it’s the debt-based securities raising the largest average sums (£730k, versus the average of just over £73k in the P2P category).
In addition to the total and average amounts raised through these various alternative financing channels, the report provides interesting insights into the social dimension. The key takeaway is that the providers and users of alternative finance are a highly diverse group in terms of gender, age and income. Women were the largest user of the donation-based crowdfunding tool (64%) while the 55+ demographic are the largest providers of P2P consumer lending (55%), P2P business lending (57%) and community shares (56%). The 55+ demographic are similarly the largest recipients of P2P Consumer Lending (61%) and P2P Business Lending (62%). The data also suggests a large range of socio-economic levels acting as alternative financiers, rather than alternative financing only being provided by high-earners (in fact, in several alternative finance forms, annual incomes of over 50% of financiers are less than £50k).
Alternative finance also appears to be having a large, positive impact on SMEs in the UK. Remarkably, over 80,000 people will have received financing through P2P consumer loans in 2014. Rather than displacing traditional finance channels, it seems alternative finance is largely providing capital to people and businesses who previously were unable to fundraise. Nearly 80% of recipients of P2P business lending, for example, were unsuccessful in trying to secure a bank loan before they turned to alternative finance. While alternative finance seems to be reasonably pervasive amongst those SMEs surveyed by the report’s research team, the number of responds who had approach an alternative finance provider was modest – at just 9%.
The Nesta report concludes by remarking that the experience of those who had received alternative finance performed “well after fundraising” the industry still has significant room for growth and greater uptake.
To read full report, please visit here.