Increasing number of European businesses look to alternative finance

A third of funding now comes from peer-to-peer lending or crowdfunding with particular growth among small and medium-sized firms

An increasing number of European companies are shunning traditional funding in favour of alternative finance, according to research from law firm Allen and Overy.

The report found that peer-to-peer lending and crowdfunding is now responsible for around a third of all EU business funding, with 48% of corporate firms expecting to see an increase in their use of alternative finance over the next five years – compared to the 31% that expect an increase in the use of bank lending or capital markets.

The study, which surveyed 360 executives and senior decision makers, also revealed that while 76% of borrowers are aware of pan-European standardised documentation, only a quarter have made use of them.

The growth of this market, especially for small and medium-sized enterprises, has been highlighted as evidence of a recovering economy – according to Ian McCafferty, a member of the Bank of England’s Monetary Policy Committee.

McCafferty commented: “The emergence of alternative lending platforms such as CrowdCube, Seedrs, and Ratesetter has helped to alleviate the so-called “funding gap” faced by smaller businesses.”

Ben Fox, partner at Allen & Overy, added:

“We feel the market is approaching a tipping point. It’s clear this part of the funding mix is here to stay, and all the components needed to create a thriving market are in place; standardised documentation and a guide to best practice for private placements have provided a foundation to help make this market more uniform.”

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