Growth of Alternative Finance Key to UK Economic Prosperity – James Horton
According to the UK’s Financial Conduct Authority, digital challengers now hold around 8% market share for personal current accounts, up from 1% in 2018, and have generated exceptional growth in the business world.
This emerging market includes Unity Trust Bank (Unity), which has been supporting positive economic, social and environmental change for more than 35 years, and Assetz Capital (Assetz), a peer-to-peer marketplace lender that enables private and institutions to lend money directly to small businesses and property developers. Assetz has lent £1.5billion to SMEs since 2013, supporting the construction of over 6,900 new homes across the UK, many of which are aimed at low-income families and young people. elderly residents.
CMS has worked with both organizations on a number of transactions aimed at supporting positive social outcomes. This includes Unity’s funding of Ferrie Healthcare, started by a young entrepreneurial couple in East Kilbride who acquired a local pharmacy maintaining a much needed service and creating jobs within their community. Unity has also supported independent childcare operator Little Learners through a refinancing scheme that has boosted local employment and helped meet growing demand for childcare.
These emerging challenger and peer-to-peer companies are fast becoming a mainstream source of finance for UK SMEs, making their current badge of “alternative lender” somewhat redundant.
Flashback to 2007 when, before the global financial crisis, the SME market was supported by the big four leading banks which provided 90% of loan funding. Things have changed drastically since that time, as alternative finance providers have significantly increased their share of the SME market, primarily through their ability to offer competitive services to viable businesses that previously would have had limited financing options.
Currently, around two-thirds of SME loans are made by so-called alternative finance providers, with many traditional banks now collaborating with 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 enter the ESG (environmental, social and governance) space that alternative lenders have successfully occupied. This includes companies like Goldman Sachs, which says its approach to sustainability is “grounded in two intersecting areas of impact: helping accelerate the climate transition and helping advance inclusive growth.”
Here in the UK, the British Business Bank (BBB) has played a pivotal role in promoting alternative finance providers in the SME market. The BBB has shown a real commitment to breaking down the barriers some companies face in accessing finance, championing sustainable growth and supporting increased investment in innovation through better financial support.
Brokers have an important role to play in the alternative finance market as they have strong market knowledge to match lenders with suitable clients. Unsurprisingly, there has been considerable growth in broker activity in the alternative finance market over the past year.
With growing attention to ESG within the business community and an ever-present need for new sources of capital for innovative SMEs, the growth of alternative finance and the ethics behind it will be an essential part of the economic prosperity of the United Kingdom.
James Horton, Senior Legal Relationship Manager of CMS Law Firm