Finance for growth: peer to business lending

Business owners might be surprised at the substantial number of individuals and other businesses who are actively looking to lend online to other businesses. The peer-to-business (or peer-to-peer) lending sector is more than doubling each year and the UK is the undisputable world leader of this form of alternative finance.

In 2013, it is estimated that £193 million in loans were extended to business this way. That’s a 203% growth from 2011. See an infographic that explains the Rise of Peer-to-Peer Lending.

There is no sign of this growth slowing. In an important report on The Rise of Future Finance, Nesta, Cambridge University and UC Berkeley stated that it was “almost certain that Britain will continue to experience substantial growth in the number of campaigns, intermediaries, individual borrowers and lenders, and also in the total capital raised to fund businesses through alternative means. Based on the average growth rates between 2011 and 2013, we can cautiously predict that the UK alternative finance market will grow to £1.6bn next year and provide £840m-worth of business finance for start–ups and SMEs in 2014.” Some people believe this estimate is on the low side.

Peer to business lending benefits

Speed and simplicity are benefits of peer-to-peer lending. It bypasses what can be much more complicated bank lending processes. For many businesses, it can often take just a few days to secure the required amount from online investors, who make their return based on the level of interest the borrower pays.

Peer-to-peer lending is suitable for businesses which have been trading for at least a couple of years, although this may vary depending on the particular platform.

Peer to business lenders

It is an industry very much in its formative stages, but a Peer-to-Peer Finance Association has already been formed. While they share similar characteristics, each platform will have their own particular criteria for lending so it is important to compare them. And more participants are emerging; some of the principal platforms include:

From April 2014 the Financial Conduct Authority will regulate the peer-to-peer lending market after calls from providers themselves to be regulated. It’s widely believed that regulation will help bring credibility and stability to the market, enabling further growth.

In February 2014 the British Business Bank announced that it is making a new £40 million investment to support further lending to smaller businesses through Funding Circle. This investment will start on 1 March 2014 and is expected to support around £450 million in lending over the next 18 months.

Other peer to business lending resources

Several businesses have benefitted from using Funding Circle:

Other finance resources:

The Business Finance Advice Scheme is run by the three participating accountancy bodies, search their directories to find an expert finance adviser in your local area: