Burgess COMMENTARY

Peter Burgess

Alternative finance: Is it the answer?

There are a number of alternative finance options for businesses, depending on what your needs are. Karina Sidenius looks at some of the options.

The past three years have seen alternative finance, where individual members of the public invest directly into projects and businesses, go from being something on the fringes of society to well on its way to being accepted by the majority – much like renewables and energy efficiency before it, I would argue.

'Peer to peer business lending, debt financing and donation-based crowdfunding are all transforming the fortunes of businesses like yours.'

The size of the UK market has doubled year on year for the past three years, with an estimated £1.74bn lent or donated in 2014. In fact, the UK is leading the alternative finance revolution in Europe – putting us in a brilliant position to show just how useful this form of finance can be for people, planet and society.

Indeed, alternative finance could serve the sustainability industry particularly well. With banks unwilling to lend to small to medium scale projects or new technology start-ups, or at sky-high rates, there’s a funding gap that alternative finance could happily fill.

It’s already doing so. Peer to peer business lending, debt financing and donation-based crowdfunding are all transforming the fortunes of businesses like yours, and in the process transforming the world we live in too. So what can alternative finance offer you?

Innovative technology start-ups and charity-based projects often have more luck on donation-based sites like Indiegogo . Here, people will pledge money to projects and in return receive some manner of ‘perk’ in lieu of a monetary return.

It isn’t always easy to succeed on these sites though. Whilst Solar Roadways and Desolenator overfunded their campaigns, they’re the exception to the rule. Unless you can catch the public’s imagination in an exceptional way it can be very difficult – although not impossible.

For developers working with more established technologies such as wind, solar, biomass and energy efficiency there are options including Abundance . We offer affordable, long-term debt financing to developers, raised from hundreds of individuals in the UK and EU investing their money into projects they support. So far this approach has seen more than £9m invested into eleven projects, with investors earning returns of between 6-9% internal rate of return (IRR) over 15 to 20 years.

Investors enjoy more than just a financial return on their investment. We keep all our investors updated on the energy generated by each of their projects. This lets them see for themselves the good work their investment is doing putting clean energy into the grid and saving money on bills for schools, social housing tenants, nurseries and more.

With Peer-to-Peer ISAs looking likely for the end of this year and allowing investments like those on Abundance, the market could be about to explode. Interest rates are at record lows, making these investments attractive already. Adding tax-free returns into the mix would arguably only make it more so.

A popular option for businesses looking for a shorter-term loan is peer-to-peer (P2P) business lending. This makes up the largest slice of the P2P market at £749m in 2014 and is most often used by SMEs looking to expand and/or grow their capital and increase their working capital. Assetz Capital , Funding Circle and Thincats are all examples of P2P business lenders, most of which offer loans for up to five years.

As such, it’s clear that there are a number of alternative finance options for businesses in the sustainability industry, depending on what your needs are. It’s also a powerful way of directly opening the world of sustainability up to the wider public at a time when concern about the climate and shifting to a more sustainable economy is at the forefront of people’s minds. Hundreds of businesses have already taken the plunge. Will you?

Risk warning: Part or all of your original capital may be at risk and any return on your loan or investment depends on the success of the project. Investments tend to be long term and may not be readily realisable. Estimated rates of return are variable and estimates are no guarantee of actual return. Consider all risks before investing.