Two industry experts have commented on the valuable addition peer-to-peer lending is making to the alternative finance market, as well as highlighting the pitfalls.
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div>John Davies, Director of Just Cash Flow PLC, and Graeme Marshall, Chief Executive of FundingKnight, have commented on the valuable addition peer-to-peer lending is making to the alternative finance market, as well as highlighting the pitfalls to avoid.
Business lender Just Cashflow partnered up with crowdfunder FundingKnight earlier this year with an intention of raising a minimum of £4m from retail investors through a series of loans, as well expanding the range of businesses that could be supported through the FundingKnight platform.
John Davies commented that their innovative partnership with FundingKnight should be “applauded” as more businesses could now access alternative funding whilst leveraging Just Cashflow’s underwriting expertise.
Recent research from Just Cashflow highlighted a shocking 30% of SMEs would give up looking for finance if their traditional bank turned them down, with the biggest reason for this cited as not being aware of their alternative options.
John believed that peer-to-peer lenders were able to significantly raise awareness to SMEs, as well as provide additional finance, however there were perhaps some pitfalls that should be avoided.
“Firstly, P2P platforms need to guard against an over reliance on technology to make underwriting decisions,” John explained.
“Modern technology must be combined with the personal touch and conversations that lead to a good understanding about how well the applicant knows their business, what they need the money for and how they can afford to pay it back.
“Secondly, as the P2P industry rapidly expands there may be a shortage of quality borrowers.”
John stated that young businesses needed access to finance so they could start building up a valuable credit record.
“The answer won't always be P2P, the flexible financial solutions we offer or other forms of finance,” John said, adding: “However, increasingly the answer will be what alternative lenders have to offer by working in collaboration with each other.”
Graeme Marshall stated that with over 50 active crowdlending platforms now lending to businesses, the choice for borrowers was “better than it has ever been.”
However, Graeme added that they always had to keep risk management at the forefront of investors’ minds.
“Whereas traditional lenders have to put their capital at risk, the crowdlending model does not require the same commitment from a web platform,” said Graeme, who has invested personally in every borrower ever listed on FundingKnight.
“In prioritising a close personal assessment of each lending opportunity, our approach to underwriting is also quite distinct from many of our peers.
“Strong growth alone does not indicate recklessness: FundingKnight has a conservative approach to risk, yet is demonstrating a rate of growth well over the industry average - over 300%.”
Borrowers of FundingKnight highlighted that speed and accessibility were much needed and were being fulfilled by the peer-to-peer market.
19% of FundingKnight borrowers have also returned for further finance.
“This is still a very young industry and growth will continue as awareness spreads,” Graeme said.
“However, every platform has a different tolerance to risk and borrowers and investors should always tread carefully.”
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