The level of peer-to-peer (P2P) business lending has increased by 250 per cent since 2012, according to data from innovation charity Nesta, backed by Cambridge University, PWC and ACCA.
Figures show £749m was lent in the first three quarters of 2014, and consumer lending was also up by 108 per cent.
The size of the alternative finance industry increased from £267m in 2012 to £1.74bn in 2014 – £749m of which is from P2P business lending and a further £547m from P2P consumer lending.
Invoice trading, equity crowd funding, community shares and rewards crowd funding, debt-based securities, and donation crowd funding also gained significant traction in the alternative finance industry.
The average borrowed by a business in the P2P space was £73,222, and 33 per cent of borrowers said they were unable to receive funding through more traditional routes. Following the funding, 63 per cent of businesses experienced growth and 53 per cent increased employment.
Consumer lending saw an average amount borrowed of £5,471. More than half of borrowers stated they had been approved for a loan from a bank but opted instead for the alternative route.
Lenders reported they were motivated by the more favourable interest rates available in the alternative market. The Bank of England has kept base rates at 0.5 per cent since 2009, despite a recovery.
Giles Andrews, co-founder and chief executive of P2P lending company Zopa, said, “The P2P lending industry is growing as existing platforms are growing and new ones are arriving. We offer more favourable rates, better value and brilliant service on top of it. Ultimately, the industry will continue to grow as awareness grows through endorsement and word of mouth.”
Zopa has lent around £700m since the company formed in 2005, £250m of which was in the past 12 months.
“Advisers should look to include P2P lenders in clients’ portfolios. It makes a sensible addition to a fixed income portfolio, which is a good component of any portfolio,” Mr Andrews continued.
The UK alternative finance market will have provided more than £1bn of growth and working capital to around 7,180 small and medium enterprises, equivalent to 2.4 per cent of bank lending to businesses, by the end of 2014.
