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Observers believe that with the conditions of the finance sector today, where interest rates continue to be at their all time lowest, now would be the best time to provide assistance to projects that are for development and expansion. In spite of this, not everyone agrees, and many traditional investors are being uncooperative. Credit policies are limiting a lot of the high street bankers. Add to that fact the staggering number of business owners are clueless who their bank manager really is, and setting up a meeting with them might prove to be disappointing and tedious.

In the wake of the credit crisis, the finance community is in need of alternative financing. Hence the birth of crowdfunding and p2p lending. The public sector is losing its faith in the banks, and these alternatives might be their solution. In 2004, the oldest p2p lender, Zopa,  was established followed by Funding Circle in 2010 which has already given over £1 billion to companies in the United Kingdom. Owners of small businesses nowadays are utilizing crowdfunding and p2p lending to fund their business as these alternatives become a dominant thread in the finance industry. In the United Kingdom, these platforms are now the third largest lender to small businesses, as opposed to before when they were just considered to provide minimal support.

 

Why Traditional Funding is Losing to Alternative Financing

Traditional banks would refer their denied customers to these alternative financing just so that they can help their clients.

 

Traditional banks are even helping the growth of these platforms, since they would refer their denied customers to these alternative financing just so that they can help their clients. The public sector’s acceptance of this unconventional financing can be clearly seen in the United Kingdom where more than 100,000 people through these platforms are loaning directly to businesses. Universities, financial investors and companies, local authorities and the British Business Bank are also supporting these platforms. These alternatives are expected to advance quickly this year, especially with the forthcoming  Innovative Finance ISA. It will become a reality on  6 April 2016 and will allow investments using p2p lending and crowding with tax-free interest. Many are now anticipating that this industry will lend more than £1 billion by this year.

Another advantage of using these alternatives is that business owners can candidly  present their business proposals to the possible financier and, in turn, the latter can ask questions directly to the owners. Likewise, business owners can also present their proposals directly to their clients. The use of these platforms are not limited to disposing business shares or introducing new products, it can also be used for the preparation against loan losses. Even though the interest rates of these alternatives are a bit higher than the traditional sources, it is anticipated that it will soon decrease in the years to come.

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