Member Article

Could peer-to-peer lending plug finance gaps?

Peer-to-peer lending models are filling the gap left by banks, suggests a new report from innovation charity, NESTA.

‘Banking on Each Other’ looks at the emerging field of peer-to-peer lending to business and the processes that drive borrowers and lenders to use the platforms.

Data derived from Funding Circle, the largest peer-to-peer business lending site in the UK shows a typical lender has around £80,000 in savings and investments, and belongs to the top 20% in terms of net financial wealth.

Interest offered, risk rating and the financial track record of the company were deemed the most important factors in lenders’ decisions.

The average size of loan raised by surveyed companies was £35,000, and the average number of people that lent money to each company was 418.

Hayley Conboy, principal policy adviser for Enterprise, said: “Growth in the peer-to-peer lending market reflects an increasing appetite amongst UK businesses for alternative sources of finance.

“Bank debt will always be an important source of finance for growing businesses, but savvy firms know they will need a range of finance options to fund growth.

“This report should increase businesses’ awareness of the range of choices available to help them grow, of which peer-to-peer lending is one option.”

The report differentiates between peer-to-peer lending and crowdfunding, defining it as the facilitation of unsecured personal lending between individuals.

Borrowers were typically shown to be established businesses with an average of 11 years trading, and on average, have raised £222,235 of finance during their lifetime.

Many of the borrowers were exporters and were in need of capital to either expand or fund their operations.

Frustration over the time-consuming nature of applications to traditional finance sources was cited as the main driver in approaching a platform such as Funding Circle.

This was posted in Bdaily's Members' News section by Tom Keighley .