The UK alternative finance market grew 35% to £6.2bn in 2017 driven mostly by peer-to-peer business lending, according to a report by Cambridge Centre for Alternative Finance.
Peer-to-Peer (P2P) Business Lending retained the top spot as the largest market segment in online alternative finance, with £2bn in transaction volume in 2017 and 65% year-on-year growth.
Assuming that the vast majority of P2P business borrowers are small businesses with turnover of less than £2m, P2P Business Lending was estimated to be equivalent of 29.2% of all new bank loans to small businesses in 2017 – nearly double the 15.3% figure in 2016.
“P2P Business Lending is becoming an increasingly important contributor to overall SME financing in the UK,” the report says.
Following P2P Business Lending at £2bn, the largest UK alternative finance categories in 2017 were P2P consumer lending at £1.4bn, followed by P2P property lending at £1.2bn and invoice finance at £787m.
The report, conducted with support of the Peer-to-Peer Finance Association and the UK Crowdfunding Association, included responses from 75 platforms with an estimated 95% of the known UK online alternative finance market, plus two additional platform datasets using web scraping methods.
The year 2017 also saw further increases in the institutionalisation of funding across alternative finance models: on the debt side, 40% (up from 28% in 2016) of funding for P2P Business Lending was provided by institutional lenders including mutual funds, pension funds, asset managers, banks, family offices and other financial institutions. This trend of institutionalisation was also seen in equity-based crowdfunding, where 49% of the funding was provided by venture capital funds and professional investors “co-investing” with retail investors.
The CCAF for the first time asked UK online alternative finance platforms to provide an indicative breakdown of their operating costs and budget allocation, finding that on average and across models, they spend about 15% on IT, 14% on research and development, 14% on sales and marketing, and 8% on reporting and compliance.
Bryan Zhang, the executive director of the Cambridge Centre for Alternative Finance said: “This report reflects an industry that is playing an increasingly important role in helping consumers and businesses access finance, whilst growing to become more diversified, sophisticated and institutionalised.”