Lending Club booms to prosper

  • neil_edwards.pngThe good news just keeps coming. Following a pleasing Autumn Statement from George Osborne that ticked many of the items on the Christmas ‘wish list’, the alternative finance industry has recently been given a lofty benchmark against which it might begin to assess its potential worth. Lending Club – America’s (and also the world’s) largest P2P lender – has just exceeded all previous estimates of its value by topping $9 billion on its first day of dealings in New York,  a staggering 50 per cent higher than predicted by the experts. It would be surprising indeed if this dream of future riches has not gained a foothold in the hearts and minds of the UK’s growing band of Altfin warriors.

    It wouldn’t pay to get too carried away, of course. Some less excitable observers are already likening the Lending Club scenario to that of the ‘dot-com’ boom of 1997-2000, when the heady cocktail of technical wizardry and greed seduced normally sensible investors into accepting that the small matter of making a profit was merely a tiresome detail. As many of us will recall, the dot-com world finally came crashing down in spectacular fashion, leaving many seasoned punters nursing huge losses and sporting some very red faces.

    But even the prophets of impending doom must accept that the wind is set fair for an Altfin sector that continues to gather momentum. The final figures are not yet in, but many confidently predict that the industry will have hit between £1.7 – 2 billion pounds this year, an increase of 160 percent. And who is to say that next year will not reach the £4.4 billion being widely touted for 2015?

    While still relatively modest in comparison with the clearing banks’ icy grip on over 90 per cent of the business lending market, serious inroads are nevertheless being made into their traditional heartland. The ‘Small Business Finance Markets 2014’ report from the British Business Bank contains some interesting facts. For example, two years ago, 45 per cent of smaller businesses were seeking funding for working capital. In 2014 that has fallen to 33 per cent, to be replaced by 43 per cent seeking the money to buy assets.

    The report also confirms that smaller businesses are finding it easier to access funding; only 26 per cent found it ‘very difficult’ to borrow money in 2014 compared with 43 per cent in 2012. It’s not great, but it’s getting better – and the same applies to awareness. Evidently, 32 per cent of smaller businesses are now aware of crowdfunding, 35 per cent of P2P business lending, but 85 per cent know about leasing and hire purchase.

    The report states that: “Evidence suggests smaller businesses fail to shop around sufficiently or plan ahead – potentially limiting their ability to obtain funds.”

    Given that is almost certainly true, it puts the onus on us to get out there and spread the message for the benefit of all. The barriers are coming down, the playing field is being levelled and we have a Government that is demonstrably in favour of greater competition in the finance sector, promising a tangibly better deal for savers and borrowers alike. We can only hope that the favourable climate carries over to the next Government, whatever hue that turns out to be.

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