The UK online alternative finance market grew 43% in 2016 to reach £4.6 billion, buoyed by increased institutional investment and a sustained pick up in innovative business lending models.
The annual report from Cambridge Centre for Alternative Finance puts peer-to-peer business lending at the top of the tree in terms of market share, growing by 36% to reach £1.23 billion in 2016.
P2P consumer lending contributed £1.17 billion with a 47% year-on-year growth rate, whilst property lending recorded £1.15 billion, 88% up on 2015.
Invoice trading accrued a total of £452m in 2016 with a 39% annual growth. Equity-based crowdfunding reached £272m with an 11% annual increase whilst the real estate crowdfunding dropped by 18% to £71 million.
Reward-based crowdfunding accounted for £48m in 2016, a 14% annual increase from 2015. Donation-based crowdfunding hit £40m – 233% up on the previous year. Community shares model recorded £35m in 2016 whilst debt-based securities grew in popularity, reaching £79m, in comparison to the £6.2m recorded in 2015.
The report shows alternative finance becoming an increasingly valuable source of funding in the small business market. Almost three quarters of the volume raised — £3.3 billion — went to startups and small businesses, a 50% increase on 2015. In total, 33,000 firms used alternative finance in 2016, compared with 20,000 in 2015.
Annual British Banking Association data implies that peer-to-peer business lending platforms now account for 15% of all new loans lent to small businesses by all UK banks. Similarly, in 2016, equity-based crowdfunding now accounts for 17.37% of all seed and venture stage equity investment in the UK.
Despite the growth in volumes, more than 35 UK online alternative finance platforms disappeared in 2016 as industry consolidation picked up pace. The data shows the top five largest alternative finance platforms accounted for 64% of total market volume.