Awareness of Peer-to-Peer Lending for SMEs is increasing
So we like to think we know a thing or two about what strains SMEs are under and about their financial needs.
In many ways, the recent piece in Forbes was spot on. Although it reflected mainly on the US market, much of what was written can be transferred to the UK market.
Peer-to-peer loans are hard to qualify for
It’s true that peer-to-peer platforms have the ability to be more flexible in terms of how a loan is drawn up, and of course our overheads are less than a bank or financial institution, but that doesn’t mean it’s easy for an SME to get a loan regardless of credit quality.
It’s important for SMEs to understand that peer-to-peer loans are now part of the lending eco-system. Not something that’s standalone. And with that comes the need for those in charge of agreeing a loan – the platforms themselves – to act with responsible lending practice.
It’s something that we are of course very familiar with, having well over 120 years of collective lending knowledge in our team.
With that comes a solid understanding of how to assess a business and therefore potential risks associated to it. Our job is then to formulate a loan that works for the business, as well as be in the interests of the investors. This means pricing the loan to reflect the risk of the loan and to take into consideration the security available for that loan.
Therefore it’s not necessarily easy to get a loan. But it is a sensible approach, mixed with lots of reality so that loans can be tailored to a creditworthy borrower.
Peer-to-peer loans can be costly for businesses
Although this is more in the direction of our US counterparts, it’s important to note that cost isn’t necessarily the killer USP of peer-to-peer lending.
Pricing is different for every loan – it depends on many factors, but it is fair to say that our pricing, and that of other UK platforms, isn’t too dissimilar to the banks but we also tend to serve large niches that are underserved by traditional lenders.
Where peer-to-peer does raise eyebrows is the time it takes to turn a loan around, and the flexibility and control to tailor a loan for a business.
We’re more nimble than many banks, and can understand thousands of different business models. This enables us to determine a loan structure that works for a particular SME, providing a tailor made loan and to deliver credit approval quickly and efficiently.
Small slice of the business pie
The Forbes piece concludes that peer-to-peer lending is here to stay (agreed), but that the number of businesses using it are still minimal. Let’s not forget that the industry is still extraordinarily young, but it has achieved a lot in a short space of time.
A recent NESTA and University of Cambridge report highlighted that lending to businesses through peer-to-peer grew by 250% between 2012 and 2014. Within the same report, the familiarity of alternative finance and peer-to-peer sources has increased significantly in the past few years. As this increases, the more we will see of SMEs obtaining finance solutions through such platforms.
And as traditional forms of finance, such as the banks, become more entwined in the benefits of alternative finance as a complementary service to their own, the more direct exposure SMEs will have of the sector.
This year, Assetz Capital signed an agreement with the Royal Bank of Scotland (RBS) which will see loan requests unable to be fulfilled by the bank, passed directly to us. At the moment, these types of deals are few and far between, but we’re working on making these more widespread, and more efficient.
Peer to peer lending is certainly here to stay and become a major part of the financial ecosystem over time.
- May 26, 2015