The alternative finance industry has been booming for quite sometime and has shown no signs of slowing down. The amount of money given away as funding in the last year has grown by well over a third compared to the previous year.

The various options that have been made available to businesses as part of alternative finance have helped SMEs overcome their dependence on banks for loans. Options such as invoice finance and loan and equity-based crowdfunding have made it possible for businesses to choose the type of alternative finance that works the best for them.

According to statistics, the alternative finance market recorded a whopping growth of 43 percent in 2016. The figure rose from £3.2bn in 2015 to £4.6bn in 2016.

Since 2010, the alternative finance industry has provided a funding of £11bn to businesses, which indicates that it has played an important role in encouraging start-ups to flourish.

The trend of seeking alternative finance to give a boost to businesses has been picking up lately and this is evident from the fact that close to 33,000 firms have resorted to alternative finance channels in 2016.

There has also been an increase of nearly 13,000 in the number of firms that have applied for finance in 2016 compared to the year 2015.

Cambridge Centre for Alternative Finance or CCAF as it is popularly known, is an academic institute dedicated to the research of alternative finance. The executive director of CCAF, Bryan Zhang, believes that online alternative finance has become an established component of the UK financial landscape.

Taking into account the seed and equity stage investments in the UK, it has been found that nearly 17 percent of such investments consist of equity-based crowdfunding.

Of all the loans that have been lent to small businesses, nearly 15 percent consists of peer-to-peer business lending. Thus there is fair reason to believe that alternative finance is already a part of the mainstream and is likely to stay here for a long time.

In 2016, peer-to-peer business lending emerged as the single largest market segment and recorded a growth of 36 percent to reach £1.23bn. Peer-to-peer consumer lending stood at £1.17bn and recorded a growth of 47 percent. Peer-to-peer property lending witnessed a growth of 88 percent and accounted for £1.15bn of the total lending.

The other market categories include invoice trading which stood at £452mn, real estate crowdfunding at £71mn, equity-based crowdfunding at £272mn and reward-based crowdfunding at £48mn.

However caution should be taken when selecting a financial firm to seek alternative finance from. According to statistics, close to 35 online alternative finance firms have been dissolved either through mergers or shutting down.

This makes it even more important to conduct a proper research on the background of the company you approach for funding. Seeking finance from a company, which is closing in on the heels of bankruptcy, may not be such a wise choice.

This bit of information will give you an idea of exactly how big and concentrated this sector is. The five largest alternative finance firms have contributed to almost 64 percent of the total market volume in the year 2016.

However, according to the experts there are still many efforts that need to be taken from the end of consumers, businesses and also the entire alternative finance industry in order to improve the ease with which finance is approved and provided.

Most experts believe that the relation between innovation in finance and the existing financial landscape has not been as linear as it was expected.

As the major alternative finance players have been fulfilling the existing demand, it has become ever more difficult for new entrants to be able to distinguish themselves in a financial environment which is completely consolidated.

However, the pressure that consolidation creates on small companies may not be entirely without use. Financial firms are now required to innovate themselves and come up with good financial products that create for them a unique place in this competition.

If this wasn’t a big challenge in itself the financial firms are also required to understand and comply with the changing supervisory and regulatory demands.

Due to the effective handling of important financial matters by the Financial Conduct Authority (FCA), it becomes a lot easier for the financial firms to understand and comply with the changing regulations.

The latest trend that has become quite popular in the landscape of alternative finance is peer-to-peer lending. The financing provided by institutional investors such as asset managers, pension funds and banks qualifies as peer-to-peer lending.

It accounted for nearly 32 percent of consumer lending, 34 percent of peer-to-peer property lending and 28 percent of peer-to-peer business lending.

There was a recent survey that was conducted by the renowned technology company Xero. In this research it was found that almost 8 out of the 10 new businesses are required to rely on their social network to arrange for the finance that is required to set up their business.

 Arranging for this capital investment without any financial support, at the young age at which people usually lay the foundation of business is an uphill task, which not many may succeed at.

In order to help businesses succeed there are many alternative finance firms in the market that provide the required finance. Some of these firms even offer flexible repayment schedules that make it convenient for business owners to focus on other aspects of their business and not worry excessively about the upcoming installment.

We live in a world that has more competition than innovation. Naturally it becomes difficult for new companies to establish their presence in such a consolidated market. The result is that only four in every ten businesses are able to complete five years of successful operations.

The biggest reason for the failure of so many start-ups is their inability to arrange for capital investment and other crucial operational costs. This brings us to the conclusion that alternative finance can make a huge difference to the ultimate fate of a business.

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