The growing importance of niche lending platforms

Mar 5, 2019 Blog  Investors , Marketplace Lending

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The Route City Wealth Club recently published an article in which it said that platform lending has been accepted into the corporate finance mainstream in many respects.  It quoted stats from the latest Cambridge Centre for Alternative Finance report which stated that “40% of the loans that advanced to businesses through P2P platforms were funded by institutions, including mutual and pension funds”.

This shows just how far the platform lending market has travelled in less than 10 years.  Institutions do not investment lightly and their willingness to channel money into the marketplace lending market is a validation of the business model – not that it is needed.  Platform lenders are playing an increasingly important role in backing SMEs and thereby also create opportunities for investors – this ensures that platforms can continue to meet the funding requirements of small companies.

The picture is somewhat mixed on the demand side – the latest British Business Bank reveals that there is awareness of alternative lenders, but it is patchy.  Interestingly enough, it is a geographical divide with small companies in London and the Southeast more likely to be aware (and use) alternative lenders than many of their counterparts in other regions.

Beyond the basics

This indicates that there is still education to do and the first thing to remember is the term “P2P” or “marketplace lending” does capture everything that is happening in the market.  The platform brings together a community of investors who are prepared to lend to individuals or companies over a fixed term.  This description covers a large segment of the marketplace, but it is not the whole picture.  Not everybody wants or needs a term loan for example.  A business that needs to buy equipment might see a term loan as a way forward, but it doesn’t represent the kind of flexible solution required to manage the gash flow gap that late payments by customers can create.

Cash Management

Platform lenders are filling this gap with cash management solutions like invoice trading – companies wishing to borrow against an invoice invite bids from lenders on a platform.

The platform lending market also has sector specialists, like property for example.  If a small developer needs funds to buy and/or develop a small block of flats, property platform providers offer a range of solutions, tailored to requirements and circumstances.

Not all investors are the same

It is important to remember that all these platforms rely on lenders who understand the concepts, business models and risks of the borrowers.  A generalist market lending site probably has a mix of ordinary retail investors, perhaps a few high net worth individuals and some institutional backing.  A Private Debt Platform, on the other hand, will have a community of more sophisticated investors who might be looking for a different kind of opportunity.

The emergence of specialist platforms create a more complex Alternative Finance marketplace, but it ultimately means that platforms are serving a very broad range of business and entrepreneur needs.

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Image: Of Shadows and Light via Flickr (CC 2.0resized)

 

 

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