I have to confess, when I first heard about peer to peer lending, I thought it
was a bit of a gimmick, not a real world solution which could be useful for our clients.
What changed my mind was listening to the BBC money box programme on ‘Broken Banking’ It is available to listen to on BBC iplayer for a year ahead. After that, if anyone wants to listen, I’ve kept a copy.
The programme explains that peer to peer sites take a smaller ‘margin’ than the banks, and so the lender receives a higher interest rate whilst the borrower pays a lower interest rate than they would have paid to the banks.
The Government has supplied peer-to-peer lenders with £100 million (as reported in the FT) which will aid their growth.
So, which peer to peer sites deal with businesses?
Funding Circle places your cash with small businesses with at least two years’ trading history. You can choose to spread your cash across lots of different businesses in different risk classes if you wish.
Information for borrowers
- Fees: one-off 2% of sum borrowed
- Loan period: 1 to 3 years
- Minimum/maximum borrowed: £5,000 / £75,000
- Average rate: around 9%
Information for lenders
- Fees: 1%
- Minimum/maximum lent: £20 / no maximum (although maximum £20,000 per loan)
- Average rate: 8.3%
- Range of rates: Varies. Minimum 6%-8% depending on risk.
- Default rates: Estimated 0.6%-2.3%
Thin Cats offers secured loans to businesses. Lenders can lend to a range of businesses to spread their risk.Information for borrowers
- Fees: £450 listing fee, plus £500 fee for preparation of legal documentation
- Loan period: a few months to 5 years
- Minimum/maximum borrowed: £50,000 / £1,000,000
- Average rate: Lender rate plus 1.5%. Currently 8.5%-16.5
- Early repayment allowed?: Yes, without penalty
Information for lenders
- Fees: None
- Minimum/maximum lent: No maximum. Minimum £1,000 per deal
- Average rate: No data
- Range of rates: 7%-15% depending on risk.
- Default rates: No data
MarketInvoice is a slightly different concept, with a ‘flexible factoring’ approach rather than a loan.
MarketInvoice allows businesses to sell long-dated invoices to investors, who bid against each other to offer the best terms. An auction type market means that invoices are sold quickly and at competitive rates.
MarketInvoice provides access to the cash tied up in invoices, whenever you need it. It avoids the high annual administration fees associated with traditional factoring.
The process is flexible and transparent.
To date, over £28 million has been advanced to businesses of various sizes and in various sectors. Some customers use it every month, and others use it as and when required.