Alternative Finance Plugs Entrepreneur Funding Gap

Lisa Smith, BA (Hons), CeFA
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Alternative finance is starting to plug a multi-billion pound funding gap for entrepreneurs and startup businesses.

The market has mushroomed to a £2 billion a year business from almost a standing start just two years ago, according to new research by innovation charity NESTA.

The finance is equivalent to high street banks lending to 7,000 small businesses – a share of around 2.4% of the commercial finance market.

The sector is booming – showing growth of 150% between 2012 and 2013, followed by161% this year.

The reason, according to online specialist investment web site SEIS.co.uk, is the banks do not want to lend to risky startups.

Debt and equity

NESTA’s research showed alternative finance comprises both debt and equity lending – from the Seed Enterprise Investment Scheme (SEIS) through to crowdfunding and peer to peer lending.

“The entrepreneurs and businesses looking for funding find alternative finance is quicker and easier to deal with,” wrote Stuart Smith of SEIS.co.uk.

“Funding is more flexible than what the banks are offering and is generally cheaper to access.”

The NESTA study also disclosed seven out of 10 entrepreneurs who have dipped into alternative finance to grow their businesses have seen turnover increase, while two-thirds reported record profits.

Another aspect of alternative finance is aid for social projects that have little or no hope of finding funding from commercial sources.

Cash control

NESTA says three-quarters of investors are giving more money to social and cultural projects than ever before.

The figures come from a NESTA report aimed at explaining how alternative finance works for investors and entrepreneurs.

“Alternative finance offers cash control and a new way to help businesses to give money to a good cause,” said a NESTA spokesman to SEIS.co.uk.

“Entrepreneurs, charities and community groups gain as they might otherwise never have had the opportunity to secure the cash they need to make their ideas work.”

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