BLOG: The rise of crowdfunding in 2016
Although many readers are probably considering such a scenario with a healthy dose of scepticism, alternative finance is increasingly taking us to the point where we are closer than ever to making this vision a reality.
Allen & Overy research reveals 48% of European corporates expect their reliance on alternative forms of finance to grow between 2015 and 2020. Tellingly, the same data shows 31% of finance chiefs anticipate they will use bank loans less frequently over the same period.
These are striking statistics, but they are figures supported by trends LMSL is seeing unfold across the property market. In an industry that has in the past embraced established ways of doing business, there is a newfound thirst for working with investors directly rather than via banks.
As the previous findings show, we are living in a lending environment experiencing unprecedented upheaval. Alongside the well-documented rise of the challenger banks who are throwing down the gauntlet to entrenched players, alternative finance is bridging the gap between traditional forms of lending and the emergence of a new and ambitious breed of investor.
Technology is removing traditional barriers to innovation, and crowdfunding (via both debt and equity) is at the forefront of these ‘disrupters’.
For LMSL the benefits are clear: by reducing the red tape associated with traditional forms of lending we can borrow at better rates, while looking to provide more generous terms to investors.
For my part, with creative disruption causing market turbulence, it is an exciting time to get involved. This is a key driver behind our decision to team up with CrowdBnk to launch the East London Property Bond – a five-year, fixed-term, secured mini-bond which offers an interest rate of 10% gross interest per year.
More broadly though, you do not have to look very far to see the positive impact made by crowdfunding on small businesses across a range of industries. With banks continuing to display a conservative approach towards their support for SMEs, more and more of them will embrace the opportunities that come not only from crowdfunding, but also Peer to Peer (P2P) lending and other types of alternative finance.
It works from another standpoint too. Attractive investment opportunities should not be monopolised by a few firms with the venture capital to take advantage – the widest possible number of individuals should have the opportunity to participate.
LMSL sees alternative finance as a market which will grow and grow in the coming years, especially in the property space where banks have traditionally held a monopoly on lending to what is a capital intensive sector.
But setting aside our excitement about its prospects, what does 2016 hold for the alternative finance market? Time will tell on how investors or SMEs may benefit. But one thing is clear: the Government needs to nurture the conditions in which crowdfunding and other forms of alternative finance can thrive. Only then can more firms be assured the Government has a commitment to expanding competition rather than staying on the side of the incumbents.
Lahrie Mohamed is chief executive of LMSL.
You may lose some or all your capital should you invest as the assets on which the bond is secured may not be sufficient to pay back your investment in all circumstances. Please read the specific risk factors for The East London Property Bond.
East London Property Bonds are not protected from loss by the Financial Services Compensation Scheme. CrowdBnk Limited authorised and regulated by the Financial Conduct Authority (No. 627852).