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Alternative Finance

Following Brexit the UK has suffered currency depreciation, market volatility and in addition interest rates are historically low. However, alternative finance in the UK has been reporting record results as investors are seeking alternative ways to make the most out of their money and borrowers are seeking new financing to replace the traditional lenders.

Figures from the industry-wide NESTA report on alternative finance published in February 2016 show that the peer-to-peer business lending sector grew considerably in 2015 to £1.49 billion, up from £749 million in 2014.

NESTA is an independent charity that works to increase the innovation capacity of the UK, Europe and more than 40 countries across the world. AltFi Data reported in September 2016, following Brexit, that British alternative financing platforms created a record £364 million in loans, a 30% increase from September 2015. It is clear that these innovative funding methods will play a crucial role in the creation and survival of SMEs.

Presently the most significant source of SME funding comes from a company’s own cash flow, with 76% of businesses in Europe and the US funding their own growth through profits. If this is not an option a business’ growth may be stunted or at worst it may be forced to close. It is increasingly important for SMEs to consider alternative financing options with one in five SMEs looking to peer-to-peer financing to fund growth.

In light of the continued success of the peer-to-peer lending industry, particularly following the Brexit vote, the funding platform is winning over critics.

In his speech to LendIt Europe on 11 October 2016, Adair Turner, the former head of the UK’s Financial Services Authority, a known critic of peer-to-peer lenders, changed his stance stating in relation to peer-to-peer lenders “They might be able, if managed well, to do established forms of credit analysis as well or better than the incumbent banks”.

Many of the major peer-to-peer platforms use the same credit-scoring databases as banks and also spread their investors’ lending across numerous borrowers to reduce risk. From April 2014 the alternative finance industry became regulated by the Financial Conduct Authority. Alternative finance platforms must therefore adhere to the FCA’s Principles for Business, which provide an over-arching requirement to act with integrity, skill, care and diligence and to treat customers fairly. These Principles and rules have strict requirements and failure to adhere to them will result in penalties.

DTM Legal celebrates the growth and continued success of alternative finance companies. We have a wealth of experience acting for alternative finance companies in a range of areas including, preparing new and reviewing and amending existing documentation including security agreements, loan agreements and personal guarantees as well as assisting with and representing funders in collections and recoveries and complex insolvency litigation.

Richard H and Kate R

To find out how we can help you, contact Kate Roberts or Richard Harris on 0151 3210000.

 

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