The Irwin Mitchell survey provided some eye-opening research data
Seventy-five entrepreneurs met in Sheffield just last week at an event organized by the law firm Irwin Mitchell. They were asked a number of questions about crowdfunding and their responses were fascinating. When asked what sources of funding they were likely to pursue in the next 12 months, only 38 per cent said that they were looking to traditional sources such as a bank or a venture capital firm.
The majority of those present were looking to use some sort of crowdfunding, with 17 per cent saying that they were looking to borrow from a lending platform. Given that 92 per cent of SME debt currently sits with the banks and only 8 per cent is provided by alternative finance businesses, this suggests that the lending landscape is about to change. Indeed, in the US, 18 per cent of SME lending comes from alternative providers and 82 per cent from the banks and it looks as though we may be heading in the same direction.
In the same survey, 73 per cent of respondents said that they would consider lending through a person-to-person or person-to-business lending platform. Of course, this was a room of entrepreneurs, who were likely to be early adopters of new ways of doing business and particularly internet savvy. Nonetheless, it is staggering that such a high proportion recognized the benefits of using a platform. As I have mentioned before, I was recently talking to a Cambridge academic, who is acknowledged as being one of the leading experts in the area of crowdfunding globally and he told me that only 3 per cent of people in the UK have heard of and fully understand the concept of crowdfunding. 73 per cent v. 3 per cent. We clearly have a huge job to do in terms of educating the general public about the merits of crowdfunding and the prize for doing so is worth having.
The attendees in Sheffield were also asked why crowdfunding was gaining momentum in the UK and 63 per cent said that they believed that the growth was due to the difficulty that companies were having in accessing finance from traditional sources (i.e. the banks). 29 per cent said that flexibility was a major factor that would lead them to source finance from an alternative provider. It is clearly true that the lack of credit available to many companies from the banks is driving them to lending platforms. It also true that once they get there, they are impressed by the flexibility offered and it is frequently the case that companies that are lucky enough to have a choice between borrowing from a bank or a platform are choosing the platform because of the greater flexibility offered.
But it is not just companies that are benefiting from using lending platforms. Savers are able to get a significantly better return on their money. Our mission is to ensure that the wider public is aware of the benefits of lending through a platform. It is extremely difficult to find investments that can provide a decent income stream these days and there is no doubt in my mind that a portfolio of loans sourced from a site like Money&Co. is an excellent way to enhance income.
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*** An edited version of this blog appeared in The Independent