Peer to Business Lending
Alternative Finance Sector Report - November 2014
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PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
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The majority of growth in the UK market has been in the last few years. In May 2014 the total size of the UK P2P market topped £1.5bn,
according to the latest figures published by AltFi Data. The Liberum AltFi Volume index (which tracks the volume of loans originated
by UK P2P lenders) passed £1bn in December 2013, meaning that the industry grew by 50% in just five months. If the rate of growth
continues at the same pace, AltFi estimate that the Liberum AltFi Volume index could reach £2.75bn by the end of the year, showing
175% (year on year) growth.
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“£1.5bn is a major milestone for the rapidly growing P2P Lending industry in the UK, but
perhaps more important is the fact that almost a third of those loans have been originated
in 2014, underlining the phenomenal growth of the industry.”
Sam Griffiths, AltFi Data
UK Government Lending via P2P (£M) (2012-2014)
The UK Government has been very supportive to P2P lending in an
initiative to boost investment into small UK companies and reduce
the reliance of large mainstream lenders.
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Zopa received £10m of
government capital in 2012, alongside P2B lender Funding Circle which
initially received £20m. The money was to be lent through the platform
and to be matched by private lenders. Due to the success of the initial
round of lending, Funding Circle have since received more government
capital, although this only accounts for a relatively small value compared
to the level of private investment raised.
SOURCE:
Zopa, Funding Circle, Liberum
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MARKET INVOICE
ZOPA
FUNDING CIRCLE
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PEER-TO-BUSINESS (P2B)
P2B lending involves lending to small or medium sized enterprises (SMEs). It works in exactly the same way as P2P and is
based on the same principles, but in some cases, depending upon how the loan is structured, it can be
LESS
risky.
Loans can be asset backed (secured against property, personal guarantees from a Director or a debenture over the assets
of the business) and are generally only made to profitable companies which can evidence their operational history. The
returns on offer vary, depending on the perceived risk of the borrower. The level of risk is established using a credit model
designed individually by each platform.
By bypassing banks both lenders and borrowers can receive a better deal.
Mainstream lenders have cut back on lending to small companies, and when businesses can borrow from the bank it is
often expensive. P2B allows borrowers to secure loans that they cannot get from a bank. (This could be for many reasons:
maybe due to having a short loan requirement time frame, a poor credit rating, not having a long enough operational
history or having a complex business).
In P2B, the decision lies with the lender who is given the information that they need to make a decision – the process is
much more straightforward and quicker than the lengthy internal processes implemented by many banks.
