Peer to Business Lending
Alternative Finance Sector Report - October 2014 25
PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
ROLE OF PLATFORMS
Collect and pay out interest payments
Provide some protections for lenders,
such as provision funds, asset backed
security on loans, applying a proven
credit model etc.
Undertake some due diligence /
screening of the borrowers and
lenders
P2B lending platforms use technology
to connect investors (lenders) with
businesses seeking to raise capital,
using crowdfunding to collectively fund
individual loans. The platform simply
provides the infrastructure that enables
businesses to apply for a loan and for
lenders to lend their money to those
businesses. All transactions can happen
through the platform, 24 hours a day.
The platform’s role includes: due
diligence on the borrower to assess
their credit worthiness; advertise the
loan on the site and make it available
to investors; prepare loan contracts,
security documents, legal and
professional documentation; and ensure
the ongoing administration of the loan
until it is redeemed in full.
The platform will also put in place the
means of holding the loan long-term,
which often includes a third party who
will hold the loan on behalf of investors.
The borrower will pay interest to the
third party, which will then be paid back
to the lender through the platforms.
Lenders can often manage their loan
book through the platform and choose
when to invest more money into new
loans or sell existing loans through the
marketplace (if this exists).
If payments are missed, the platform
will often use a debt recovery agency
to try to recover outstanding funds, in
the same way as mainstream lenders. As
each case is often different, they will get
legal advice on the best way to proceed
to secure the best chance of recovering
any outstanding money.
Depending on the focus of the platform,
they may take physical security on
assets against the loan or the loan may
be unsecured, with a protection fund
in place to compensate investors if the
borrower defaults on the loan.
Some platforms also provide start-up
companies with free mentoring, support
and guidance to help ensure that the
business is at a stage that it is suitable to
apply for funding.
FEES
Fees have been one of the most
controversial factors and inherent
problems with mainstream financial
services and lending in recent years.
More recently the focus has been on
mainstream lenders continuing to charge
relatively high rates on short-term
business loans whilst paying very low
returns to savers. With P2B there are far
less intermediaries in the chain, lower
overhead costs and overall lower fees to
borrowers and lenders.
