Feb 5 2014, 3:47pm CST | by Forbes
Britain’s alternative finance industry continues to break new ground. The peer-to-peer lending sector more than doubled in size during 2013, new figures reveal, as the crowdfunding community stepped up its efforts to exploit the inability of the Britain’s banks to lend – and the lack of appetite among many customers to borrow from them.
In all, the UK’s peer-to-peer lending sector lent £843m last year, 121 per cent more than in 2013, according to data published this week by the Peer-to-Peer Finance Association – and the very fact the sector now has its own trade body tells its own story. More than 3,700 businesses borrowed money this way, while 70,000 consumers took loans. The supply side is equally buoyant, with 86,000 active lenders in the sector last year.
Moreover, peer-to-peer finance represents just one part of the crowdfunding scene, with new models springing up all the time. An increasingly diverse sector hopes that official regulation, due to be implemented in April, will boost its appeal still further. Plans to offer tax breaks to investors in alternative finance, now being actively discussed by the Treasury, would be another shot in the arm.
Zopa pioneered the crowdfunding model – its nine-year trading record makes it one of the world’s longest-established peer-to-peer lenders and its success has seen it widely imitated. It has so far lent more than £460 million to individuals and remains popular with lenders and borrowers alike.
Compared to Zopa, Ratesetter, launched in 2010 is the new kid on the block, but it has already managed to persuade savers to extend more than £170 million worth of loans to borrowers via its matched exchange model. Ratesetter hopes the fact that it operates a contingency fund, which kicks in when a borrower defaults, is a unique selling point.
Funding Circle wasn’t the first crowdfunding business to recognise that the fact Britain’s small and medium-sized enterprises were being starved of cash represented a business opportunity, but it is the most successful in its class. So far, it has funded £215 million worth of business loans – and its new venture in the US makes it Britain’s first crowdfunding exporter.
ThinCats is one for the crowdfunding aficionados. Like Funding Circle, it matches individual investors with small businesses raising money, but suits more sophisticated types interested in delving deeper into borrowers’ backgrounds. A system of sponsors, who conduct due diligence on borrowers, has also proved popular and the site has now lent more than £50 million.
Leeds-based Rebuildingsociety.com has been up and running since September 2012. The site has some catching up to do – total advances currently stand at around £1.6 million – bit the business has a second string to its bow. It also builds crowdfunding platforms for third parties, both in the UK and abroad. It’s a useful diversification strategy.
Crowdcube, the first crowdfunding site in the world to target investors prepared to take equity stakes in small businesses, has raised funding of more than £17 million for these companies since its launch in 2010, with more than 55,000 members putting up cash. The business is already fully regulated by the Financial Conduct Authority and the companies it supports usually qualify investors for tax breaks under the Government’s Enterprise Investment Scheme.
Seedrs joined Crowdcube in the equity-based crowdfunding space in 2012 and has so far raised £5.5 million for companies using the site. The business focuses specifically on start-up companies, and has recently expanded into continental Europe. Like Crowdcube, it is fully FCA-regulated and companies on the site are typically EIS-qualifying.
Market Invoice is one of Britain’s most innovative crowdfunding businesses, operating in a space where the banks no longer dare to tread. The factoring sector, which enables businesses to sell on unpaid invoices in order to boost their cashflow and working capital, has a long tradition in Britain, but when the banks pulled out following the credit crisis, this source of finance dried up. Step forward Market Invoice with a crowdfunding model that replaced the banks with individual investors – since 2011, more than £115 million worth of invoices have changed hands via the site.
Abundance Generation is attempting to introduce the crowdfunding model to ethical and sustainable energy projects, many of which have struggled to attract finance since cuts in subsidies a couple of years ago. Abundance Generation enables individual investors to fill the gap offering investments of as little as £5 in debentures (basically loans) issued by projects in need of long-term finance.
Trillion Fund also operates in the renewable energy sector, providing a platform for a range of different types of investment in clean energy infrastructure such as wind and solar. The platform aims to bring the benefits of crowdfunding to a sector that has generally only been able to operate through vehicles aimed at high-net-worth investors.
The best of the rest
Britain’s crowdfunding sector is attracting a stream of new entrants. Recent launches in the sector including SyndicateRoom, an equity-based site where investors are invited to top up funding advanced to companies by established business angels, and InvestingZone, which targets more sophisticated investors. Then there are sites such as Unbound, targeting the publishing sector, and the newly launched ShareIn, which is excited about prospects in the health technology industry. Watch this space: there will be more.
Source: Forbes Business
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.
blog comments powered by Disqus