THE BLOG

Who's Leading the Crowd? The British

02/10/2014 17:05 BST | Updated 02/12/2014 10:59 GMT

For much of my life, it's been a truism that the Americans are at least one - and sometimes two or three - steps ahead of us in Britain. I'm old enough (just!) to remember the Beatles and the musical revolution they precipitated, but the Mop Heads from my home town of Liverpool were the exception that proved the rule.

So often, when I've been looking for the exciting, the fresh and the innovative, the focus of enquiry had to be the United States: cutting-edge technology, popular food fads (remember when McDonalds was a novelty in the UK?), cultural trends, to name but a few. No question of who leads.

Just lately, on some fronts though, the UK may be taking charge. We Brits have a rapidly developing alternative finance sector, and specifically crowdfunding. This sector, in an era when banks on both sides of the Atlantic are failing borrowers and savers alike, is as necessary as it is cutting-edge and cool.

Crowdfunding - and here I must confess I am the CEO of a UK crowdfunding platform - can do many things. The one that I lead, Money&Co., brings people and businesses together by connecting small and medium-sized companies (SMEs) with lenders looking for a better return on their capital. We cut out the banks that can't or won't lend to business.

The crowdfunding market is more mature in America. Yes, they got there first. I'm just back from a trip to the US, and it is always instructive to look at what's going on in what is still the world's largest and most vibrant economy.

And in the US, as in the UK, the economy relies heavily on SMEs during economic recoveries. In both countries, the traditional sources of finance - notably the banks - have failed to support this vital sector.

A staggering 120 million people are employed by SMEs in the US and, since 1995, two-thirds of new jobs have been created by them. This masks a period of heavy job losses borne by the sector as the credit crunch really took hold. Nationally, the US saw an 8.3% decline from peak to trough in employment, but small and medium-sized businesses saw a 14% decline from peak to trough. Small businesses are again creating two-thirds of all new jobs in the US, but the actual number of people employed in the sector is still way down on the peak levels seen in 2008.

In the US, 82% of SMEs cite a bank as being their main provider of finance, which suggests that 18% use alternative sources. In the UK, 92% of SME lending comes from the banks and only 8% from alternative sources. However, over £2 billion has been lent to SMEs by alternative providers over the last four years, and it is highly likely that bank lending to SMEs will fall to the US level over the coming years as the availability of finance from alternative sources increases.

The regulatory environment will have a significant bearing on growth and this is partly how I see this side of the Pond building a bigger, better profile: UK regulators have struck a good balance between protecting small investors and allowing the crowdfunding space to grow. It's very important that there should be regulation; its protection brings confidence to both investors and borrowers. The UK has adopted the light-touch regulation the industry needs, but things are less clear in the US with the Securities and Exchange Commission (SEC).

It may be that the UK will actually come to dominate the global crowdfunding scene. Yes, the US market is more mature, and the advent of the UK's peer-to-peer (P2P) finance sector - a sub-sector of crowdfunding - continues to expand at an even faster rate than previously thought. According to recent market data published by Alternative Finance (Alt Fi), a media outlet, cumulative lending has doubled since last December.

Major platforms have now lent a combined total of more than £2 billion in the UK, having reached the £1 billion milestone nine months ago, according to the recently published figures, compiled in conjunction with boutique investment bank, Liberum.

The UK economy continues to experience a fragile recovery, but it will not continue unless businesses have access to the money that they need to grow. In the US, bank loans to small businesses are down 20% since the collapse of Lehman Brothers, whilst loans to large businesses are up 4%. We have seen a similar trend in this country. Tighter regulation is the main reason for this as banks have had to focus on rebuilding their balance sheets and there is nothing to suggest that this situation will change in the near term.

For individuals, it is a simple message. If you lend to US or UK companies, you will be helping to maintain the economic recovery and you will get an attractive return on your cash.

And for financial commentators? Followers of trends? The UK is very, very good at financial services. Given the right regulatory approach, I think the UK could come to lead the world in crowdfunding.