Online alternative finance grew 84% year-on-year to £3.2bn (€4.1bn) in 2015, according to a report by the University of Cambridge Centre for Alternative Finance and Nesta.

According to the report, total alternative business lending reached £1.82bn, which translated to 3.43% of gross national banks’ lending to SMEs based on Bank of England’s 2014 baseline figure.

Total alternative lending to businesses excluding real estate, stood at £1,126m. £881m was provided through peer to peer lending, while £245m was provided to businesses using equity-based crowdfunding.

"Looking specifically at the small business sector, we estimate peer-to-peer business lending (excluding real estate lending) supplied the equivalent of 13.9% of new bank loans to small businesses in the UK in 2015 (based on BBA’s 2014 baseline figure of £6.34 billion)," the report said.

Real estate, technology and manufacturing & engineering were the most popular sectors.

The report also highlighted that growth of alternative finance has started to slow as it grew at about half the pace of 2013 to 2014 (161%).

Stian Westlake, executive director of policy and research at Nesta, said: "As the sector grows, it is sure to face challenges. In the coming year, as equity crowdfunded businesses mature, investors will be on the lookout for evidence of actual rates of return. If the economy turns sour, backers will learn more about the quality of peer-to-peer loans.

"Bad news on either of these fronts will be a challenge for the industry. We are also likely to see incumbents playing an increasing role: both mainstream financial institutions, who are seeking to learn from their new competitors, and institutional funders, who are providing significant amounts of the funds available on a growing number of platforms. If the industry can rise to these challenges, its growth seems set to continue."

The research was completed in partnership with KPMG and with the support of CME Group Foundation.