Is Alternative Finance finally Converting Businesses?

In 2015, the alternative finance market in Europe grew by 92% to €5.4 billion. This represents a massive upswing for the industry and it has continued to rise since then. Alternative financing methods have been around for years, but it’s only recently that the sector has experienced a boom. This suggests that many businesses are now turning to alternative finance as a way to help them grow and succeed, finally proving its worth.

Recent Growth

The UK is the largest market in Europe for alternative finance, with the same report finding that the total amount of funding raised through this method added up to €4.4 billion. This is a huge amount more than France, who came second with €319 million. On a whole, alternative finance lending jumped from €2.8 billion in 2014 and €1.13 billion in 2013 across the entirety of Europe.

Peer-to-peer lending was the largest section of alternative finance, both consumer and business, with equity based crowdfunding third. There are all sorts of alternative financing methods that have become popular as opposed to using banks and led to such growth. These include the likes of invoice discounting, grants, crowdfunding, venture capital and more.

Rising Factors

There are various factors behind the rise in alternative finance. The main one of these is necessity, with many businesses unable to access regular financing options through banks due to the stricter acceptance criteria they now apply after the global financial crisis. Start-ups and SMEs especially found it difficult to access regular finance methods, so turned to alternative finance.

Another reason is the flexibility offered by alternative finance, as opposed to the rigidity of a standard bank loan. The likes of crowdfunding and new regulations allowing larger amounts of capital to be raised have also increased its popularity. This all shows that more and more businesses are trusting alternative finance as a source of funding.

The Future

Alternative finance is only predicted to grow in the coming years. While the global financial crisis may be a few years behind us, there are still many uncertainties, such as Brexit, European elections and more, that could make it hard for many SMEs and start-ups to access bank finance. The percentage by which it grows is unlikely to be as large as in previous years, yet this demonstrates how much alternative finance has already been accepted.

It would appear that thousands of businesses have already been converted to alternative finance, which is good for the innovative sector, but could be bad for banks in the coming years.