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In Focus Risk


Why 2017 will be the year for alternative finance


Alternative lenders are seeking to offer more then just a loan – they provide a relationship that opens doors for industry


Rajiv Nathwani Founder and director, Quivira Capital rajiv@quiviracap.com


For the past few years, the alternative-finance sector has been booming – 2015 saw growth levels above 80%, and the sector is currently facilitating in excess of £3bn in investments and donations.


Now that there is some grounding of understanding on what alternative finance is, the sector is primed for even more growth. This year, pull-backs in lending by major banks, a boom in the number of secured- lending options, and record numbers of young and developing businesses will see alternative finance adopted by an ever more diverse audience.


Post-crunch


There are undeniable similarities between the post-credit-crunch environment which catalysed the initial rise of the alternative- finance sector, and our current climate as destabilised by Brexit. Namely, both resulted in economic uncertainty.


As in 2007, we are currently witnessing an unstable pound. The initial Brexit announcement, as well as Theresa May’s statement that we will be taking a hard- Brexit route, led to marked fluctuations in the value of sterling. As the credit crunch demonstrated, oscillations in credit supply will mean pressured interests rates, which, in turn, mean banks create more stringent lending criteria, and rigorous screening, to limit loans to individuals and businesses that can guarantee safe returns.


The downward trajectory in available bank loans coincides with a boom in the number of new and young businesses. These, by their nature, will often lack established lines of credit. The result is that a lower proportion of companies than ever before


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will be able to take traditional lending routes, or, to put it another way, more companies than ever will turn to alternative lenders and packages to meet their financing needs. We are already witnessing this – over the past year alternative finance accounted for more than half of all investment in small businesses, scale-ups and start-ups.


Outlook and timeline


The primary differences, between the immediate post-credit-crunch climate and our current economic state, are a matter of outlook and timeline.


Firstly, we have inherited a well-developed mistrust of banks, which has resulted in an openness to exploring alternative, potentially lesser known, options. Furthermore, our understanding of what alternative finance is, has meant we have come to recognise it as a valid first choice, rather than perceiving it as something resorted to if your bank loan application is rejected.


Secondly, as knowledge and trust around alternative finance have become more widespread, a broader range of businesses have begun to demand alternative-finance products that meet their specialised needs. These products have been in the pipeline for several years, and now a significant number, having been approved by the FCA, are being released onto the market. With a boom in choice and tailored options, uptake by new audiences will undoubtedly increase, and alternative finance will no longer be seen as only a solution for those not deemed creditworthy by banks.


New products


With a boom in choice and tailored options, uptake by new audiences will undoubtedly


Although understanding of the benefits of alternative finance has grown over the past couple of years, the introduction of new products into the market will also open up discussions which highlight alternative finance as a reliable, quick, flexible, and painless answer to short-term financing needs. This message will resonate with our growing number of young, small-scale firms. Start-ups, scale-ups, and small enterprises regularly face unexpected opportunities and challenges that require a quick financial resolution – such as funding for new office spaces, or cushioning for changes in their business environment.


increase, and alternative finance will no longer be seen as only a solution for those not deemed creditworthy by banks


In either of these circumstances, the growth of the business in question would be stunted by waiting up to, or over, six months for a bank loan to complete.


By contrast, if they were to apply for a bridging loan as soon as they recognised a challenge or opportunity, they could have access to the money they needed and be able to react in seven to 10 days. This is


www.CCRMagazine.co.uk March 2017


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