May 16, 2014

The rise of alternative lending

If you haven’t heard the terms ‘alternative lending’ or ‘crowdfunding’ then where have you been recently?

Ask any independent small or medium sized business if the banks are lending and many of them will give you a very short answer (that’s a ‘no’). It’s a well-known fact that banks are not exactly being free with their money these days and this has resulted in businesses finding alternative routes to secure the finance they need in order to expand or develop.

Alternative lending is basically a bunch of individuals (a crowd) who see the potential of a project, investing an amount of money each to finance it so that it can become a reality. There are three types of crowdfunding: ‘equity’, ‘reward’ and ‘debt’ and each one has its own pros and cons.

The results have transformed some businesses beyond recognition towards successes that would not have been possible if their bank had been the only source of funds (and had said ‘no’). So much so that we have seen the rise of many crowdfunding websites in recent times, the biggest and possibly the best being Kickstarter, Indiegogo, Quirky and Crowdcube to name but a few.

But in such a fast-growing sector, it’s no wonder that legislation is just around the corner but for now, the Financial Services Authority (FSA) have issued guidance to crowdfunding which is actually quite useful as it offers advice on what to look out for.

Though crowdfunding is not going to be right for every independent business looking for that extra finance to boost a project, it could be the way forward for others.

If you have any further questions don't hesitate to contact us.



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