Alternative finance looks set to grow in popularity as the UK economy is poised for growth in 2016, and British businesses continue to explore non-bank forms of financing.

By Farah Khalique

Alternative finance will increasingly catch the eye of institutional investors - large, sophisticated investors like pension funds, investment funds and banks with considerable amounts of money to invest - predicts Karen Kerrigan, chief legal officer at crowdfunding platform Seedrs. 

"Alternative finance and crowdfunding are getting a lot of attention from institutional investors, both [in terms of] investing on platforms but also [the] potential for equity crowdfunding to work alongside institutional investment."

"Equity crowdfunding fits alongside IPOs (initial public offerings) and we are looking to be pretty involved in that."

There is scope for companies to use crowdfunding sites to attract investment from the man on the street.

 

Companies that go public traditionally use corporate brokers to sell blocks of shares to institutional investors, but now there is scope for companies to use crowdfunding sites to attract investment from the man on the street.

2016 is also the year that the US will relax its rules on equity crowdfunding, a boon for small American businesses but also established UK-based crowdfunding sites that are considering international expansion. Seedrs is one such company that is eyeing up the American market, following its acquisition of California-based Junction Investments.

The alternative finance community will also keep a close eye on the Financial Conduct Authority's final review of its crowdfunding rules, due later this year. The rules were first set out in 2014, and now it is time for the UK watchdog to consider how well those rules have been implemented.

Tony Baron, chairman for tax and economic affairs at the Federation of Small Businesses, anticipates growth of alternative financing options as these continue to be "fairly aggressively marketed."

But there is limited awareness of these options among small and medium-sized businesses, and that will not magically correct itself in 2016.

"That awareness will increase as time goes by and I would expect you will see more use of peer-to-peer lending and crowdfunding as time goes by. How quickly it picks up is another matter," says Baron.

The pressure is now on for banks to re-direct rejected loan applicants to alternative finance providers, thus giving them more financing options.

Find Farah Khalique on Twitter at @farahkhalique