Peer-to-peer Commercial Lending: Breakthrough, Or Make-do?
British consumers and businesses have been pressed between a rock and a hard place in their attempts to find affordable credit
. Low cost personal loans from banks start at several thousand pounds, while payday lending, an increasingly popular form of credit, is also recognised for its very high costs.
Peer-to-peer lending, which is less secure but which solves these varying market failures, is now soaring. The UKs first peer-to-peer website, Zopa, announced that it had crossed the 200 million barrier in arranged loans during the third week of May.
Astonishingly, it claims that less than 0.5% of its customers have lost money through bad debt since its launch.
So, its solving a major problem, and, despite not being covered by the Financial Services Authority, its proving to be just as successful. The head of policy at the Bank of England, Andy Haldane, has said that this could significantly lower the influence of high-street banks.
There are peer-to-business models for small businesses too, which claim that cutting out banks can offer funds to businesses at much lower levels than are found on the high street.
Peer-to-Peer Commercial Property Lending
And the worlds first commercial property lending exchange, Relendex, which has attempted to bring a new approach to commercial property finance, is now thought to be broaching the prestigious World Finance 100 list for 2012.
Relendex works by connecting each borrower directly to multiple lenders who each bid to provide part of a loan on a property. Such an exchange is designed to provide funding for growth in commercial real estate.
The live auction process allows borrowers to take the option of the lowest rate loans on offer from different institutions that collectively meet the loan amount required. For lenders, this is arguably a different asset class, with the series of individualised arrangements falling between loans and investments.
The problem with this in practice? The rates that are suggested to attract lenders are quite high, so the only kind of commercial property interest that will be attracted to this market is property that high street banks won't normally lend on, such as nightclubs, petrol stations, closed pubs, vacant property, and so forth. Borrowers won't need to pay these rates if they can get funded cheaper elsewhere.
Peer-to-Peer: A Gap in the Market?
But is that cheaper funding available? Research from BDRC Continental this week showed that one in three small businesses were rejected for new applications for loans or overdrafts from their bank between Jan 2010 and March 2012.
Elsewhere, however, the same consultancy noted that businesses do not see payday loans as the answer to their commercial finance needs.
At a level above the cheapest bank loans, but not altogether out of sight, peer-to-peer lending may have an expansive future. But with the National Loan Guarantee Scheme in operation, its not likely to be first choice while funding is going cheaper elsewhere.
by: UkBiz
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