Alternative Finance Explained
Alternative finance is a relatively broad term, encompassing all types of business financing that is not sourced from a mainstream provider. The popularity of alternative finance has been increasing rapidly since the global financial crisis of 2008, with the restrictions on lending in place at banks meaning that more and more businesses are seeking alternative sources of finance. In 2015, alternative finance lending increased by 60% year on year, with forecasts predicting total alternative finance lending levels to reach £12 billion by 2020. Shard Capital Alternative Finance works with a large network of family offices and niche investors to create personalised, optimal funding packages for each client. The Shard Capital service supports businesses at every stage of growth trajectory, removing the need to seek further capital from external sources. There are various types of alternative finance that businesses can access.
Popular Types of Alternative Finance
One of the most popular types of alternative finance is crowd-funding, where smaller individual monetary contributions are made from a large group of individuals. This includes equity crowd-funding, where a start-up or growing company offers shares in its business in exchange for capital. Peer-to-peer lending (P2P) pairs borrowers and lenders via an online platform, with the lenders taking profit from interest on the loans while the borrower may be able to access funds that would be otherwise unavailable to them. Selective invoice financing allows a business to unlock cash that it is owed with no ongoing contract. However, this does not result in extra funding, just access to monies owed. Angel investors are high net worth individuals who advance funds to businesses in expectation of rapid growth followed by an exit event that will generate a return on the investment. Pension-led funding involves a loan being made to the business out of the pension fund of the owner, which is then repaid with interest over time.
One aspect of the growing appeal of alternative finance is that the products are often tailored to meet the specific needs of the business. This offers far greater flexibility and the potential for less strain on company finances. For example, a business that is seasonal may struggle to make the repayments on a traditional bank loan at certain times of the year. With alternative financing, they could arrange to make larger payments in busy months and smaller payments at the times of year when business is quiet.