Alternative finance for SMEs continues to grow in the UK. Peer-to-peer loans allow small businesses to fund expansion plans, buy an asset or provide working capital. Their importance is reflected in the fact that P2P volumes are significantly greater than other forms of alternative business finance. In 2015 the total lent to SMEs reached over £2.5 billion, and peer-to-business lending is expected to increase rapidly in 2016.
With volumes this large, there must be a reason why businesses choose this form of alternative finance. Why is peer-to-peer lending so effective for borrowers?
1. Investors in peer-to-peer lending are also increasing, with over 128,000 investors now lending on peer-to-peer platforms. This means that more and more finance is becoming available for borrowers, and this can be expected to continue with the launch of the Innovative Finance ISA, set to attract more peer-to-peer investors.
2. Peer-to-peer lending uses the power of the crowd to match many individual investors with a borrower looking for a loan. This allows borrowers to raise large amounts of money fairly quickly as a group of investors can lend a small amount each.
3. Borrowers have more control and flexibility over how much they borrow and for how long than they do with more traditional sources of finance such as bank loans.
4. The loan application process is quick and requires minimal paperwork, and once a loan is live on the platform borrowers can receive funds within a couple of weeks. Fast loans are possible for borrowers who urgently need access to finance.
5. Peer-to-peer lending platforms are driven by technology and have easy-to-use, intuitive interfaces which make it easy for borrowers to apply for and see the progress of their loan, while also making lending appealing to investors.
6. Due to the digital nature of peer-to-peer loans, loan campaigns can be shared on social media or by email, meaning increasing awareness of your loan and reaching new potential investors is easy to do.
7. Peer-to-peer investors often have a personal interest in the business they invest in, such as the business being in a sector they are familiar with or local to the area where they live. These personal connections often encourage investors to lend to businesses as they want to see the business succeed.
8. Peer-to-peer lending apps such as the LendingCrowd app enable individuals to lend through smartphones and tablets. By making lending more accessible, it is likely to increase how often individuals invest and make sure they don’t miss new loans appearing on the marketplace.