HM Insights

Report shows alternative finance enjoyed meteoric growth in 2015

In 2015 the alternative finance market in the UK grew to £3.2 billion, which is an 84% increase on 2015.

Perhaps even more remarkable is that more than one million people in the UK invested, donated or lent via an online alternative finance platform over the year.

Crowdfunding Equity Growth Scotland Peer To Peer

These were just some of the headline figures from the latest Cambridge University/ Nesta Alternative Finance Industry Report which was released this week. The report allows us to take a more in depth look at how the alternative finance market in the UK moved on in 2015 and it uncovered a plethora of interesting statistics.

It is abundantly clear that alternative finance is continuing to grow and provides a popular funding route for a number of small and larger sized businesses. 20,000 SMEs were funded through alternative finance in 2015 whereas this figure was only 7,000 in 2014.

Growth areas

One of the most significant changes that 2015 has seen is the rise of real estate funding, which has accounted for quite a significant number of alternative finance transactions in 2015 and according to the Nesta Report is officially now the most popular sector. Debt and equity based crowdfunding in relation to real estate has amounted to just less than £700 million in 2015 alone. We have also seen a large number of real estate specific crowdfunding platforms appear in the UK market and clearly they have been getting a lot of traction.

Equity crowdfunding has also continued to grow in an upwards direction with it being the second fastest growing sector (after real estate) increasing by 295% from 2014 and is now estimated to be worth £332 million. Such equity based crowdfunding also accounted for over 15% of seed and venture stage equity investment in UK companies.

What about Scotland?

At Harper Macleod, we have seen a year-on-year increase in the number of alternative finance deals that we have been completed. Not only this but each year we are getting more involved in a variety of different funding models e.g. typical equity crowdfunding deal, mini bonds and debt instruments crowdfunding. The Nesta Report has confirmed that peer-to-peer business lending accounted for over £1 billion in 2015. This is a 99% increase on the 2014 figure.

In spring this year we are expecting the Scottish crowdfunding report 2015 which will show how crowdfunding, as well as other alternative finance models, have grown in Scotland in the last couple of years. This should make for interesting reading in comparison to the Nesta Report. We expect to see that alternative finance is on the up in Scotland, however we suspect that it may still have some way to go before it is close to the UK-wide growth figures.

Regulation of alternative finance

Regulation of the alternative finance sector continues to develop. One of the main changes in 2016 is likely to be the introduction of the Innovative Finance ISAs which provide for peer-to-peer lending agreements to be included within your tax free ISA allowance. It is anticipated that this scheme (to be introduced in April) will see a significant increase in the number of peer-to-peer lending projects that we see on the platforms, given the tax advantages.

Alternative finance is still in its early stages and there are still risks which continue to deter members of the business and community, particularly as we have seen businesses fail which have crowdfunded. However what we have also seen in 2015 are two high value crowdfunding exits, which resulted in valuable returns for investors and fuel the promise of more success stories to come.

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