Does new = higher rates when it comes to peer to peer lending?
By Bridging Loan Directory -
Peer to peer lending, and in particular crowdlending to British businesses from the likes of Funding Circle, Thin Cats and FundingKnight, is enjoying another burst of positive coverage in the press, this time boosted by Andy Haldane from the Bank of England.
Haldane, who is director of financial stability at the BoE, told the Independent “it’s a time of opportunity knocking for finance. Hopefully, the growth of peer-to-peer lenders will help solve the problems we have in the UK with lending for SMEs.”
The government, meanwhile, has gone a step further and announced that it will actually start lending via peer lending platforms and, subject to parliamentary approvals, has earmarked £20 million to invest in British businesses via Funding Circle, starting in 2013.
Whilst any boost to small business funding is welcome, it does remain to be seen whether the influx of government money might dilute returns for existing Funding Circle lenders. Of course, the strong hope is that the publicity boost that Government involvement will bring will attract enough borrowers to more than outweigh any impact of rates reducing due to increased supply of lender funds.
Time will tell…
It does beg the question, however, of whether when it comes to peer to peer lending and crowdlending for businesses, newer platforms offer some advantages of those who are tried and tested.
Of course, P2P investing isn’t for everyone, and there are risks attached whomever you choose to lend to but new entrants, like FundingKnight in the peer to business lending space, might be seen to offer some advantages:
Newer platforms have less lenders… which means that the rates lenders can achieve might be higher than those which will be available when the masses of real competition arrives.
- New players want to establish their reputation for lending quality, so might very well pay more attention to lending controls and risk assessment.
- Borrowers might find that approaching a new entrant brings even more flexibility to have one to one conversations and discuss lending terms. Whilst all peer to peer lenders offer more flexibility than mainstream banks, as the volume of borrowers increases, it will become increasingly hard for established players to maintain high service levels and a reputation for flexibility.
In the end, it’s a personal decision. But one things for sure, the bank sized lending gap isn’t getting any smaller so where P2P lenders are concerned, the more the merrier.