Peer-to-business Loans

With 2014 now in the past we thought it would be a perfect opportunity to make some predictions for the New Year ahead.

2014 was a groundbreaking year for alternative finance and we believe that 2015 is going to be an even greater one, especially with the new bank referral scheme brought in by the government. Banks are to be forced to refer SMES to alternative finance providers if they refuse them a loan.

This scheme leads very nicely onto our first prediction for 2015 – ‘Awareness to increase’

Last year Liberum looked into awareness levels around the sector and there was one stat that stood out amongst the rest – 65% of UK adults still remain unaware of the existence of P2P lending. With the help of the new referral scheme this percentage can only increase in 2015 and Nick Moules from Rebuilding Society couldn’t agree more and says the influx of ISA investors at some point in 2015 will lead to a new wave of media interest.

“While platforms are increasingly attracting investment which will manifest into more consumer marketing, predominantly on the TV, transport network and online. There will be no escaping AltFi in 2015…”

The Eden Project, River Cottage and Caterham F1 all raised finance through Crowdcube last year and Luke Lang of Crowdcube believes that a lot more household names will begin using alternative financing to fund projects in 2015. The likes of the Eden Project will boost awareness around the area as supporters and fans of projects alike will want to get involved and feel they have an input on something they really appreciate.

Louise Beaumont, founder of Platform Black, agrees and told This is Money earlier this week:

There is no doubt that the demand for alternative finance will grow dramatically in 2015 as more and more SMEs realise the potential and benefits of alternative finance providers.”


The second prediction for 2015 is – ‘Even more platforms’

As we all know this isn’t something new to the sector but throughout 2014 every single week seemed to bring up at least one fresh, unique platform and we believe 2015 won’t be any different.

An example of a unique platform that has entered the space in 2014 is Gamcrowd – a crowdfundng platform for the gambling industry. As well as crowdfunding, Gamcrowd is also a crowdsourcing platform, which allows businesses old and new to access a crowd of gambling industry professionals who wish to sell their services on a per task basis. We expect there to be even more niche platforms entering into the space this year.

The third prediction for 2015 is - ‘Further user interaction’

Our third prediction for 2015 is for platforms to become more involved with lenders and borrowers. In a recent study by Cognizant, 701 US peer-to-peer lenders and borrowers found branch availability to be the single most desired platform feature – 43% of borrowers.

One platform that stands out compared to all others is Folk2folk, the peer-to-business lending platform that secures loans against property. Folk2Folk operated exclusively in Cornwall to begin with where it reached over £35 million in cumulative lending. The peer-to-business lender has now expanded to Devon and within the next year the company expects the value of its loan book to hit £60 million.

In response to the Cognizant, David Brown of Folk2Folk commented:

“It was very interesting to see the survey results by Cognizant from the US P2P market and the most desired feature of branch availability. Since Folk2Folk’s inception and building on the core ‘personal values’ of Parnalls Solicitors Private Mortgage business, from which Folk2Folk was born, we have identified the clients recognise the benefits of a very personal service.”

“We believe that by adapting to and meeting people’s needs we have continued to receive more and more referrals from like minded clients.”

Folk2Folk prove that the personal touch does work and we very much expect many more platforms to start interacting with their borrowers a lot more within the next year.

Prediction number four is ‘Alternative lending to start challenging high street banks’

Our fourth prediction is back to the banks again and how alternative lending will be a credible challenger by the end of 2015. In a previous article on AltFi we discovered that the alternative finance sector is not only addressing the SME funding gap, it is now closing it and according to AltFi Data, alternative business funders channeled £268m of SME funding over the course of Q3.

This leads nicely onto a survey conducted by Ratesetter last year where the lender asked the readers of MoneyWeek ‘Will P2P become a credible challenger to the high street banks?’ A remarkable 82% answered yes and with the bank referral scheme coming into place we can’t think of any reason why this will not be the case, maybe not this year but definitely in a few years to come. The AltFi industry will continue to make inroads into areas from which the banks are receding, with small business lending being the most obvious sector.

In Luke Lang’s 10 predictions for 2015 he backed this up with his number 1 prediction being ‘banks will continue to fail SMEs’. He said. “The funding void that banks have left for start-ups and growing businesses will continue to be filled by the alternative finance sector.

We’ve had a lost decade of bank lending now – and this could become a lost generation the way things are going; the young budding entrepreneurs of the future are growing up thinking that ‘banks don’t lend’”


Prediction number 5: ‘The rise of Trade Finance’

The definition of alternative financing is broadening and this is the reason for trade finance being accepted into the space. Trade finance platforms come into play a lot earlier in the supply chain than the likes of Market Invoice as they provide funding at the point where an order by a business is made. 

The area is doing very well and two examples of platforms are TradeRiver Finance and Trade Finance Partners. These two platforms work in very different ways:

  • TradeRiver funds buyers in order to allow them to make swift payments to suppliers.
  • Trade Finance Partners instead purchases the ordered goods itself and then delivers those goods to the buyer on behalf of the supplier.

Platforms are always trying to seek new opportunities and we wouldn’t be surprised if a Market Invoice or Platform Black includes trade finance as part of their platform by the end of the year.

I’m going to finish on something that Louise Beaumont brought up earlier this week and that is that 2015 is the year that ‘alternative finance’ leaves the ‘alternative’ part of its name behind. According to the founder of Platform Black the industry has been growing by 90% year-on-year and she said: “If 2014 was the year that alternative finance came of age, then 2015 is the year that it will finally shake off its prefix of being alternative.”

So is 2015 the year that Alternative Finance changes its name?

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