What Is Alternative Business Finance?
The dictionary definition of ‘alternative’ says it all;
“of one or more things available as another possibility or choice, or of or relating to activities that depart from or challenge traditional norms”
In terms of business finance the word ‘alternative’ simply means non-traditional. Nesta estimate that the alternative business finance market grew from £267m in 2012 to £1.74bn last year, wow. What makes this even more amazing is that the growth has been achieved with almost no advertising.
Customer awareness of the alternative finance market remains relatively light with many SME owners still unaware of the options open to them.
In many ways the number of options is akin to trying to order food from a long menu, you can never really decide what you really want and what the other person has always looked more appetising. Part of the problem with alternative finance is the shear volume of choice.
Take these stats on peer to peer lending (P2P, also known as crowdfunding);
- There are over 50 P2P platforms operating in the UK alone, of these 90% of the lending is done by the top 10 providers
- The main areas which see lending are; SME business loans 43%, Invoice Finance 16%, Consumer Credit 31%
- Equity (Dragon’s Den type deals) accounts for only 5%
What we have is an active UK market where the lending being done is relatively traditional but the lenders are anything but traditional.
By the way, the worlds leading P2P finance provider ‘LendingClub’ recently floated on NYSE with a capitalisation of over $7bn, that is 3x more than TSB. Time to take alternative business finance seriously.
How Do Alternative Lenders Compare To Traditional Banks?
Try this comparison;
The comparisons start to show why there is an appeal to using alternative lenders. Many of the things that frustrate about traditional lenders are being addressed. The business model for alternative lenders can be described as ‘Disruptive’ in much the same way as Alibaba, Ebay, Amazon and Uber have done in other sectors.
This is where the alternative finance sector has started to grow up and you can really start to see the longer term roots being established. The belief that ‘crowdfunding’ means that the capital being leant comes from a ‘crowd’ is no longer true.
Institutional cash is now pouring into the P2P market. Take Funding Circle, probably the most established business P2P lender in the UK. Funding Circle now have business loans being 100% financed by pension companies, corporates, institutions and even HM Government. How the capital is raised is changing, what this means for the borrower is a more ready stream of cash and a genuine desire to lend.
Underneath all of the growth in P2P lending and alternative business finance is the technology that has enabled it all to happen. As consumers our expectations have evolved, we now expect more of on-line companies than we do of physical presence companies. I recently had a faulty piece of IT delivered via Amazon, I emailed, had a response within a couple of hours and a replacement product shipped to me the following day. In between that time I had two text messages advising of when my order would be arriving.
I would not expect a similar level of service if I was shopping at the local megastore.
Alternative finance is conducted on-line via efficient platforms that marry up with our expectations. For most of my clients this is the bit that surprises them, that the lender will provide an answer the same day and the cash the day after that. It just was not the way it was always done, but always should have been.
If you want any more information on alternative business finance then please get in touch. If you are still wondering what you can finance in this way then the answer is, pretty much anything. As a guide you can do the following through P2P and alternative business lenders;
- Unsecured Loans
- Invoice Finance (single invoices or ongoing)
- Commercial Mortgages
- Construction & Development Finance
- International Trade
- Short Term Loans
- Bridging Finance
There really are few limits.
Any queries please give me a bell or add your comments above.
By Dave Farmer