Startups and Small Businesses Drive Growth in Alternative Finance

The Cambridge Centre for Alternative Finance (CCAF) has published new data which shows the UK’s alternative finance market grew by 43 percent in 2016, and researchers are pointing to startups and small businesses as the key driver for that expansion.

 

Last year, £4.6 billion was raised through alternative channels, up from £3.2 billion in 2015, according to a survey of 8,300 investors and 77 crowdfunding or peer-to-peer platforms. The researchers said about 72 percent of market volume in 2016 can be traced back to demand from startups and small businesses.

 

The UK is racing ahead of its counterparts having the highest number of new business developments in a developed country and this increase comes despite the uncertainty surrounding the UK’s vote to leave the EU. It saw 218,000 new businesses established throughout the country last year, a 6 percent rise year-on-year. Other developed countries including France, Germany, Italy, Japan and the US saw an average 2 percent rise in the number of businesses over the same period.

 

The crowdfunding and peer-to-peer lending industry are credited with aiding this sharp rise in start-ups helping to boost the entrepreneurial environment. Regulators have aided the sector with light touch regulation, allowing new platforms to flourish and increasing competition in the financial services space. Last year, the UK implemented new rules that require traditional lenders to refer borrowers to an alternative finance provider if they are rejected for a loan. The Government’s objective to reduce corporation tax to 17 percent by 2020 may also be helping the start-up climate.

 

Traditional players have also begun partnering with alternative finance companies in an effort to fill service gaps for small businesses and consumers. “Alternative finance has entered the mainstream and is likely here to stay,” said Byran Zhang, executive director of the CCAF at the university’s Judge Business School, which conducted the research.

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