Growth of alternative finance essential element in UK economic prosperity - James Horton
According to the UK's Financial Conduct Authority, digital challengers now have around 8 per cent market share for personal current accounts, up from 1 per cent in 2018, and have generated exceptional growth across the business community.
This emerging market includes the likes of Unity Trust Bank (Unity), which has supported positive economic, social and environmental change for over 35 years, and Assetz Capital (Assetz), a peer-to-peer marketplace lender which allows private and institutional investors to lend money directly to small businesses and property developers. Assetz has lent £1.5bn to SMEs since 2013 which has supported the building of more than 6,900 new homes across the UK, many catering to low-income families and elderly residents.
CMS has worked with both organisations on a number of transactions aimed at supporting positive social outcomes. This includes Unity’s financing of Ferrie Healthcare, launched by a young, entrepreneurial couple in East Kilbride who acquired a local pharmacy retaining a much-needed service and creating jobs within their community. Unity also supported independent nursery operator Little Learners through a refinancing package that boosted local employment and helped address the growing demand for early years childcare.
These emerging challenger and peer-to-peer companies are quickly becoming a source of mainstream finance for UK SMEs, making their current badge of ‘alternative lender’ looking somewhat redundant.
Rewind back to 2007 when, prior to the global financial crisis, the SME market was supported by the big four high street banks which provided 90 per cent of the finance for lending. Things have radically changed since those days as alternative finance providers have greatly increased their share of the SME market, mainly through their ability to offer competitive services to viable businesses that previously would have had limited funding options.
Presently around two thirds of SME lending is being undertaken by so-called alternative finance providers with many traditional banks now collaborating with their up-and-coming rivals in areas such as fintech offerings.
Meanwhile, some of the world’s largest banks and financial institutions have realigned their own positioning to move into the ESG (environmental, social and governance) space that alternative lenders have successfully occupied. This includes the likes of Goldman Sachs which says its approach to sustainability is ‘founded on two intersecting areas of impact: helping to accelerate the climate transition and helping to advance inclusive growth.’
Here in the UK, the British Business Bank (BBB) has played a pivotal role in promoting alternative finance providers to the SME market. The BBB has shown a real commitment in breaking down the barriers that some business face in accessing finance, championing sustainable growth and backing increased investment in innovation through improved financial support.
Brokers have an important part to play in the alternative finance market as they have strong market knowledge to match lenders to appropriate customers. Unsurprisingly, there has been considerable grown in broker activity within the alternative finance market over the past year.
With an ever-growing focus on ESG within the business community and an ever-present need for new capital sources for innovative SMEs, the growth of alternative finance and the ethos that it’s grounded in will be an essential element in UK economic prosperity.
James Horton, Senior Legal Relationship Manager at law firm CMS
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