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The growth of marketplace business lending


Marketplace business loans

Business loan statistics continue to demonstrate the growing maturity of the UK marketplace business lending sector as a funding option for SMEs.

In its infancy, back in 2011, only £21 million of business loans were provided by marketplace – or peer-to-peer (P2P) – lenders, the Cambridge Centre for Alternative Finance (CCAF) reports. By the end of 2018, this figure had grown to £2.33 billion, according to the British Business Bank and lending data analyst Brismo. The latest market statistics from Know Your Money indicate that this astonishing rate of growth is set to continue in 2019.

In the year to date, more than a third of SMEs that were seeking a business loan opted for funding from an alternative finance source (up from 15% in 2017). Interest in and awareness of this sector, which includes marketplace and P2P lenders, has doubled since 2017.

Awareness

This growing awareness of marketplace business lenders has resulted in half of SMEs contacting providers other than the ‘big five’ banks when seeking finance, according to the British Business Bank’s Small Business Finance Markets report for 2018/19.

Speed of decision-making, ease of process and same-day funds are often cited as the reason businesses are, more frequently, looking at alternatives to traditional banks for funding.

This increase in awareness is reflected in online search data that shows a 100% rise in business loan comparison searches that include marketplace and P2P lenders.

Marketplace lenders

The most recently available industry report from the CCAF shows that marketplace business lending continues to make up the largest contribution to the alternative finance sector.

The CCAF report also indicates a change in the type of SMEs choosing to seek business loans from marketplace lenders. While the percentage of SMEs deemed to meet the eligibility criteria for a business loan fell in 2017, the rate of approval increased significantly.

The CCAF concludes that this is likely a result of more established businesses deciding to use a marketplace lender in place of a more traditional option.

Future

With Bank of England Governor Mark Carney recently highlighting the £22 billion SME funding gap, there are huge opportunities for marketplace lenders to increase market share and fill this gap. The continuing growth of business lending within the alternative finance sector comes at a time when high street banks are being accused, by the SME Alliance, of a reluctance to lend to UK SMEs.

With this in mind it is easy to foresee more and more SMEs heading directly to marketplace lenders for future business loans.

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Ewan McDonald

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