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Business borrowers should think outside the bank

Man behind counter at cafe

SMEs are the backbone of the British economy, making up 99% of the business population and accounting for more than half of all private sector employment.

While the uncertain outlook amid the ongoing Brexit negotiations may cause traditional lenders to restrict their appetite for funding, small businesses are increasingly thinking outside the bank when it comes to their options for funding. Competitive rates and rapid loan turnaround times mean that more borrowers are turning to specialist peer-to-peer (P2P) business lenders like LendingCrowd, which enables individual investors to lend directly to SMEs via its innovative online platform.

According to research from the British Business Bank, published on 20 February, net bank lending remained “relatively flat” in 2017, while P2P business lending volumes rose by 51% to almost £1.8 billion.

With this rapid growth, the P2P sector is maturing and moving into the mainstream as platforms evolve and diversify their business models – a fact highlighted by the Bank of England in its latest financial stability report. And the British Business Bank says that awareness of the P2P lending market continues to rise as small firms look beyond the traditional sources of finance.

Since it was established in 2005, the P2P market has evolved rapidly. The industry is now regulated by the Financial Conduct Authority (FCA), and we became the first P2P lender focused on the SME market to achieve full authorisation from the City watchdog in November 2016.

Financial stability

“P2P lending could improve financial stability by providing an alternative source of finance for consumers and small businesses,” the Bank of England said in its November financial stability report, noting that the sector’s flow of business lending has almost doubled over the past two years.

The flexibility of our funding packages, combined with our ability to offer a highly personalised service and much quicker turnarounds on loan decisions than are available on the high street, are making an impression in the market.

Gaining authorisation from the FCA added credibility and trust in what remains a relatively young marketplace. It has also meant that regulated platforms such as LendingCrowd have been able to launch Innovative Finance ISAs (IFISAs) after gaining ISA manager status from HM Revenue & Customs.

The introduction of the IFISA, combined with robust and transparent credit data on borrowers, means that more investors are opening their eyes to the opportunities made available by lending directly to home-grown success stories. As well as offering healthy returns for investors, P2P generates real benefits for the wider economy by providing access to finance for small and medium-sized businesses who may struggle to secure funding from the banks.

LendingCrowd stands ready and willing to help Britain’s vital SMEs, who should be looking to diversify their sources of finance. Find out more.

Article author

Gareth Mackie

Gareth Mackie

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If you invest through LendingCrowd you should understand that your capital is at risk.

LendingCrowd is the trading name of Edinburgh Alternative Finance Limited, Company Number SC468392, authorised and regulated by the Financial Conduct Authority (Firm reference number 670991). LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

Read more about the risk involved when investing and borrowing.

The company's registered office is 23 Manor Place, Edinburgh, EH3 7DX.

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LendingCrowd is working with the British Business Bank to help deliver CBILS loans to SMEs affected by the Covid-19 pandemic. Find out more: