Despite the gloomy predictions, the UK economy is growing nicely: 0.4% for 3Q17. This is good news because it means UK SMEs, the acknowledged engine of the UK economy, must be growing too. For businesses to thrive they need finance, but the reality is that traditional banks struggle to lend in the sub £10m space because they are over-regulated, without appetite and lack flexibility. Fortunately, the gap is being filled by the P2P lenders which lent over £1bn in UK in 1Q17. That they are becoming a major force is no longer in doubt.
As Gillian Tett, the FT’s US correspondent observed on 12th Oct, “ham-fisted banking rules spark the creativity of lenders”, but regulation makes it uneconomic for banks to lend in the sub £($)10m space. This is helping drive the rise of P2P Business Lending.
As a general rule of thumb, lending to business has to be kept simple. Lending is for banks and P2P businesses - not, by definition, the natural function of a widget manufacturer. So, if you want to attract that widget manufacturer to your loan product or service, you’d better keep it simple. Cut the paperwork to a minimum, move it online and make decisions quickly. A quick ‘no’ is miles better than a lingering maybe. P2P is online and prides itself on quick decision making.
And then there’s flexibility. Businesses change; sometimes they want more, other times less. But what they don’t like is being penalised for being successful – for example, being forced to pay a financial penalty for paying off a loan early. This is clearly a nonsense.
P2P is now an established part of the financial landscape so it is no longer brave to choose this source of finance. That said, debt is not a dirty word in alternative finance – indeed, it can be a sign of growth – which is another reason the P2P is sector gaining traction. We welcome customers who want to raise finance rather than make them feel guilty. Looking around the market is often rewarded when it comes to financing a business. It’s best to determine if there is the chance to consolidate debts into one place, generate more working capital and renegotiate some of the specific terms of your contract – for example, revisit the need for personal guarantees.