THE rise of alternative finance for startup and growth businesses is beginning to make an impact in Scotland.

Alt-fi is the distant relation of traditional investment, which is notoriously difficult to access: peer-to-peer crowdlending (P2P), and its brothers in arms, equity and seed crowdfunding (aka rewards), are increasingly the first, but often the only opportunity for some businesses to secure additional finance.

P2P lending offers businesses a speedier, more flexible finance option than they might find from a traditional finance provider, believes Stuart Lunn, with lending decisions made in 24 hours. The borrower can receive the funds within a few days, meaning that business owners can get on with growing their business rather than chasing a lending decision.

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Lunn, co-founder and CEO of Scottish P2P provider LendingCrowd, said: “Our fees are transparent and tiered based on the length of the loan, meaning there’s no hidden surprises for borrowers. There are no early repayment fees, offering the flexibility to repay the loan in full if this suits the borrower, and we work with each business on a case-by-case basis to ensure they get the funding that fits their requirements.”

P2P lending works because many investors are willing to move money from savings accounts to investment products such as peer-to-peer – LendingCrowd has more than 3000 signed up.

The primary motivation for peer-to-peer lenders is return, particularly in a low interest rate environment, said Lunn. And P2P offers an additional asset class for investors, enabling them to diversify their overall investment portfolio and reduce exposure to any one asset class.

“Aside from financial return we find that many investors are keen to support small companies, particularly given the backdrop of negative news around the perceived treatment of SMEs by some traditional finance providers,” he said.

LendingCrowd topped 200 cumulative loan deals in August, a record month with around £2.5 million of funds inflow and four Scottish deals worth more than £400,000 completed. It has loaned more than £18m since the business was launched in late 2014, with deals ranging in size from £20,000 to in excess of £1m.

It’s a start. But the fact is that Scotland lags behind the rest of the UK in awareness and uptake of alternative finance.

Lunn said: “While awareness of alt-fi in Scotland has grown recently, it is still less well-known than in England.

“On a 3-5 year view, Scotland will catch up. As more investors are drawn to the sector, this will have a positive effect on borrower awareness and further improve the availability of capital.”

Lunn says the company has been well supported by Scottish Enterprise, however, the biggest impediment is lack of awareness and education amongst SME advisors, including lawyers and accountants.

“Those advisors are well positioned to help clients navigate beyond traditional finance providers and should be looking to help by introducing them to platforms like ours.”