Nesta

44 facts about alternative finance!

The information below contains highlights from the 2014 UK Alternative Finance Industry report produced by Nesta and the University of Cambridge.

The results are based on analysis of transaction data from alternative finance platforms, surveys of their users and commissioned national surveys of consumers and SMEs in the UK.

Request callback

awarness of alternative business chart background

Market size
Growth
£267m £666m £1.74billion 2012 2013 2014

Breakdown of 2014 market by platform

  • P2P business lending
  • P2P consumer lending
  • Invoice trading
  • Equity crowdfunding
  • Community shares
  • Rewards crowdfunding
  • Pension-led funding
  • Debt-based securities
  • Donation crowdfunding

Average growth rate 2012–2014

  • 250% P2P business lending
  • 108% P2P consumer lending
  • 174% Invoice trading
  • 410% Equity crowdfunding
  • 95% Community shares
  • 206% Rewards crowdfunding
  • 5% Pension-led funding
  • 117% Debt-based securities
  • 77% Donation crowdfunding


P2P BUSINESS LENDING


£73,222


Average amount borrowed
33% of borrowers believed they would been unlikely to get funds elsewhere

On average it takes 796 micro-transactions from individual lenders to fund one loan

63% of businesses saw a growth in profit with 53% seeing an increase in employment since securing funding, 83% of lenders were men

P2P CONSUMER LENDING


£5,471


Average amount borrowed
54% have lent more than £5,000

Lenders primarily motivated by interest rate available

More than half of borrowers had been offered a loan from the bank but went with P2P Lending

46% used loan to purchase a vehicle

INVOICE TRADING


£56,075


Average amount raised
33% of businesses said it was unlikely that they would have received finance could they not have turned to an invoice trading provider

The average invoice finance auction only takes 8 hours

Three in four users would use invoice trading in the future even if banks were to offer similar terms

EQUITY CROWDFUNDING


£199,095


Average amount raised

Two-thirds of investors have invested more than £1,000

38% of investors were professional investors or high net-worth individuals

Since securing funding 70% of businesses have increased turnover, 60% have increased employment

54% of businesses sought expansion capital, 46% sought seed or start-up capital

COMMUNITY SHARES


£174,286


Average amount raised

The average investment in community shares is £368

38% of investors in community shares attended local shareholder meetings

32% of investors have offered to volunteer directly with the project they supported

The prospect of a finance return was only important or very important to 24% of investors

REWARDS CROWDFUNDING


£3,766


Average amount raised

The majority of funders had spent less than £50 on supporting projects and mostly backed only a single project

53% said they would have been unlikely to get funded were it not for crowdfunding

72% of founders knew the person running the campaign they backed either personally or by reputation

PENSION-LED FUNDING


£70,257


Average amount raised

Pension-led funding (PLF) users are mostly small businesses, 7% were sole traders while 60% had 5 or fewer employees

51% of PLF fundraisers thought that they would have been unlikely or very unlikely to secure funding elsewhere

43% have increased their employment after raising finance via PLF

DEBT-BASED SECURITIES


£730,000


Average amount raised

Average investment in debt-based securities is £1,243

On average it takes 587 funders to fund a renewable energy project through debt-based securities

The opportunity to make a positive social impact was an important factor in deciding to invest for 86% of investors

DONATION CROWDFUNDING


£6,102


Average amount raised

34% of fundraisers have seen an increase in volunteering after their campaign

27% of donors had offered to help or volunteer with the project they backed

46% of donors have funded projects that others in or outside their local area could use

This report is split into four main parts. In part one we look at findings from across the alternative finance industry, including the total size and growth of the market, as well as the significant differences between various alternative finance models. In part two we look at the general awareness of alternative finance in the UK amongst consumers and small and medium sized enterprises (SMEs). Part three looks in more detail at each alternative finance model from both funder and fundraiser perspectives. Finally, part four concludes the research and discusses the current as well as future development of alternative finance in the UK.

What we did – data sources and research methodology

To meet the multifaceted research objectives and ensure the consistency, rigour and validity of this comprehensive study, four stages of research activity were designed and carried out by researchers from March to September 2014.

Stage one involved collecting and analysing granular–level relational and transactional data directly from alternative finance platforms. Primary data totalling £1 billion in financing volume and one million in micro–transactions (e.g. from one lender to one borrower or from one donor to one project) were collected and then subsequently cleaned, anonymised, aggregated and analysed.

Stage two of the study consisted of designing and distributing model–specific questionnaires in order to survey both funders and fundraisers (i.e. users) of alternative finance in the UK. Surveys were distributed via 25 leading alternative financing platforms/providers as well as through public channels and social media. In total 15,658 users were surveyed.

Stage three, which was conducted in association with the ACCA and PwC, included commissioning two external national surveys to understand the level of awareness as well as the nuances of perception about alternative finance among 2,007 consumers and 506 SMEs in the UK.

Finally, in stage four, an industry–wide tracking survey was designed and distributed mainly through the UK crowdfunding association (UKCFA) and P2P Finance Association (P2PFA) to gather latest industrial figures for the year 2014. Actual transactional figures were collected for Q1–Q3 and projected figures were estimated and compiled by alternative finance platforms for the 4th Quarter. These projections were primarily provided by the platforms, but in a minority of cases were calculated by the research team based on the platform’s previous growth rate.

PENSION–LED FUNDING


£70,257

Average amount raised


Pension-led funding (PLF) users are mostly small £23m businesses, 7% were sole traders while 60% had 5 or fewer employees.

51% of PLF fundraisers thought that they would have been unlikely or very unlikely to secure funding elsewhere 43% have increased their employment after raising finance via PLF


Market size Average Growth 2012 2013 2014

Pension led funding is now a £25 million market.

Pension–led funding (PLF) offers SME owners and directors the opportunity to re–channel, and re–invest their pension funds back into their own ventures and companies mostly as working or expansion capital through SIPP or SASS instruments.13 PLF has supplied more than £25 million of finance to SMEs in 2014. Analysis of data from PLF providers show that the average amount raised through PLF is £70,257.

WHAT IS PENSION-LED FUNDING

Mainly allows SME owners/directors to use their accumulated pension funds in order to invest in their own businesses. Intellectual properties are often used as collateral.


Pension Led Funding is used primarily by small mature businesses

Seventy–four businesses responded to our survey of PLF users. The businesses seeking PLF came from a range of sectors with retail, construction, technology and manufacturing among the most prevalent. They are almost entirely small businesses. Seven per cent were sole traders with 60 per cent having five or fewer employees. Though small, many are not young. Almost half have been trading for more than 10 years with just eight per cent trading for less than three years. Three–quarters had begun using PLF in the last three years.

Users of PLF believed it was easier to access funds through the model than through traditional financing channels. They also value being able to utilise their pension funds (an ‘important’ or ‘very important’ factor in choosing PLF for 66 per cent of respondents) and having more control over their finances (73 per cent). More than half had approached a bank for funding before securing funds through PLF, with less than a third of those receiving an offer of funding from the bank.

When asked how they found out about PLF, the most common responses were professional advisor (40 per cent) and offline advertising (35 per cent). Whilst some respondents found it difficult to find the PLF provider (11 per cent) and to transfer their existing pension across (13 per cent), in general, most of the survey respondents found that PLF was easy to use.

Sixty–two per cent of businesses have seen their profit grow after securing finance through PLF

Just over half of the businesses surveyed believed it would have been ‘unlikely’ or ‘very unlikely’ that they would have secured the funds they needed from other sources, had they been unable to use PLF. Since obtaining funding, 62 per cent have seen their profit grow, 59 per cent have increased turnover and 43 per cent have employed more people. Other reported impacts since securing PLF include improved cash flow (53 per cent) and the launching of a new product or service (47 per cent).

Respondents’ view of PLF was generally positive. 81 per cent say they would be ‘likely’ or ‘very likely’ to recommend PLF to a business they know. 79 per cent are ‘likely’ or ‘very likely’ to approach PLF for funds in the future with 66 per cent inclined to do so, even if a bank offered funds on similar terms.

To find out if
pension-led funding
can work for you call
0800 014 7099
or complete this confidential form


Figure 52: In which sector does your company/organisation operate?

Figure 53: How many years have you been trading?

Figure 54: What was your purpose(s) for raising capital through pension–led funding? (can select multiple)

Figure 55: How did you find out about pension–led funding?

Figure 56: How likely is it that you would have received finance elsewhere if you could not have gone to pension–led funding?

Figure 57: Change since accessing funding

© 2014 Nesta.org