Alternative financing sources such as crowdfunding companies and peer-to-peer lenders have become the preferred sources of funding for small businesses globally. This has led to the rapid growth of the alternative financing market in the past few years, which is continuing to expand as governments develop policies to encourage these financing alternatives.
Crowdfunding companies and peer-to-peer lenders have become the preferred sources of funding for small businesses globally
According to a report by Fiserv, alternative financing loans are estimated to hit £12.3 billion in 2020. This will be ten times more than the £1.2 billion that was loaned out in 2014. This rapid growth started in 2011 where the amount loaned out from alternative financing market was £90 million. This will be a big boost for small businesses which normally find it very difficult to acquire loans from banks.
It also enables lenders to get higher interest rates on their money and borrowers to access more capital cheaper, quicker and more easily.
Through peer-to-peer lending market, lenders and borrowers connect directly without the involvement of banks. This process completely eliminates middlemen and their associated costs and two-faced dealings. It also enables lenders to get higher interest rates on their money and borrowers to access more capital cheaper, quicker and more easily.
P2P lending platforms do not face the regulatory requirements like banks that require the holding of large capital collaterals to safeguard loans. This keeps their costs lower than banks. Nevertheless, it is important for stakeholders to understand that the cash loaned out by P2P lenders are not given equal legal protection like those of bank depositors.
The increase in popularity of P2P lending and crowdfunding alternatives among small and medium enterprises (SMEs) has been enhanced by improvements in technology. The current technological advancements, which are creating user-friendly lending markets, are likely to drive the rapid growth of SMEs through to 2020. Needless to say, the projected £12.3 billion to be loaned through alternative financing sources by 2020 is still below the total loaned out by high street banks.
Featured Image: Peer to Peer Lending