There has recently been a slew of negativity around alternative finance with the high profile failures of a supposedly Innovative Finance ISA (IFISA) eligible bond and a peer to peer lending platform. While these are important stories and regulatory reviews and rule changes are a normal feature of any sector’s development, other recent news underscores its importance and the demand that is driving it.
Last month the P2P Finance Association reported a ‘record number of lenders and borrowers involved in peer to peer lending’. The figures, referring to its 8 member platforms, showed over 150,000 lenders invested in 321,483 loans by the end of Q2 2019 and £800 million of new loans facilitated in Q2 alone, taking its platforms past £11.3 billion.
Meanwhile, this week, Funding Xchange published its SME Monitor that tracks small businesses’ ability to access funding. The report states that, “Non-bank lenders have proven to be highly effective in filling the funding gap present in challenged sectors such as retail, accommodation and construction. Within these sectors, fundamentally sound businesses have been unable to access funding through their bank.”
Funding Xchange provides businesses with funding solutions from over 40 different providers and is one of the three government designated finance platforms to which nine of the UK’s biggest banks are required to pass on the details of small businesses they have turned down for finance. Looking at companies referred to it, the platform has concluded that borrowing costs for some UK businesses are dropping, with the average rate offered by specialist SME lenders now beating that offered by mainstream banks with representative APRs of 9.9%.
It seems that transparency in the SME lending market, and at no cost to the SME, has created growing competition that is driving the cost of funding down.
Then there is increasing evidence of the growing appeal of peer to peer lending to younger investors. Ratesetter and Growth Street both made this point to Peer to Peer Finance News this week. Ratesetter’s spokesperson told the magazine, “there is a clear trend that the number of investors under the age of 35 is growing strongly and consistently over time.”
The attraction lies in the digital nature of P2P platforms as well as competitive returns. The involvement of younger investors is likely to be a positive driver, with platforms realising that these could be long-term customers, and that there is an opportunity to maintain their loyalty through the most favourable outcomes.
This story also highlights the massive potential for lower, regular investment amounts in P2P, a far cry from the recent criticisms that too many, less well-off individuals have been putting too much into P2P investing: Frazer Fearnhead, founder of The House Crowd, is launching Money Mog, a millennials-focused platform which will enable customers to invest as little as £50 a month.
So, while negativity has a tendency to make a bigger splash, there are actually plenty of good news alternative finance stories out there.