By David Prosser, Is crowdfunding the answer to the problems of small businesses struggling to raise the funding they need to grow and develop? The speed with which the alternative finance sector is now expanding suggests it just might be.
This is an industry on target to be worth £1.74bn by the end of this year, according to research just published by the innovation group Nesta – that represents an astonishing 161 per cent rate of growth since 2013. And this exponential growth looks set to continue: Nesta is forecasting that the figure will reach £4.4bn by the end of next year.
Of these sums, the lion’s share is accounted for by crowdfunding. Some of the money is going to individual borrowers through peer-to-peer loan sites such as Zopa, but it is small businesses that are raising the most cash from crowdfunding.
Peer-to-peer business lending has risen by 250 per cent over the past year to £750m, while equity crowdfunding platforms have raised a further £84m for small companies – that’s 410 per cent more than in 2013. Other types of crowdfunding, including invoice finance and bond issues, are also registering healthy gains.
This, in other words, is an industry that is taking off. So much so, that many in the sector now see themselves as a credible rival to the banks, rather than as a backstop to be turned to only in the event that the banks say ‘no’.
It helps that crowdfunding has won so much support from policymakers in recent times. Formal regulation of the sector, introduced in April, was a crucial step. Now investors can be confident that crowdfunding platforms are being properly policed by finance watchdogs, they are much happier to put money into the sector.
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