There is a huge pool of potential borrowers just waiting to be unlocked by peer-to-peer lenders, says Angus Dent, chief executive of ArchOver…
Just because a business applies for a peer-to-peer loan, it should not be assumed automatically that it must have been turned down by its bank, or that it is a sign of desperation from a company under financial pressure. On the contrary, raising finance for the right reasons, and on the right terms, is a mark of strength rather than weakness. If there is a message, it is one of confidence in the future.
In the majority of cases – such as when the owners want to grow their business by investing in, say, technology, new plant and equipment, talented staff or to finance stock for the export market – borrowing extra finance for the purpose can actually be a very smart thing for a company to do. Rather than wait to generate the money out of cash flow, it can be the fast track to the next level of development.
One of ArchOver’s earliest borrowers, TruTac, a tachograph analysis specialist company, has gone on record as saying that the extra funding we were able to provide enabled the business to grow by 70 per cent in just two years.
Of course, it is true that many companies, small- and medium-sized enterprises (SMEs) in particular, look first to their bank for finance. If they are turned down, they believe that to be the end of the road and simply give up. Nowadays we know better. For whatever reason, loan applications can sometimes not meet a bank’s lending criteria, but it does not mean that finance is not available from another source that takes a different view.
The government’s bank referral scheme, that went live at the beginning of last November, was introduced precisely to combat this problem, guiding ambitious smaller companies to alternative, nonbank providers of finance. It is too early to say whether this initiative has achieved any measure of success because the statistics are not available yet. And in any event, the period in question has been somewhat clouded by uncertainty surrounding Brexit and the election of Donald Trump to the American presidency.
The last figures issued by the British Bankers’ Association (BBA) in December reflected the situation, showing that SMEs are tending to borrow less and deposit more; SMEs borrowed 13 per cent less in the third quarter of 2016 than in the third quarter of 2015. At the same time, SME deposits rose by five per cent to over £170bn.
This tells me that there is a huge amount of potential growth just waiting to be unlocked. It is no secret that, in general, the P2P sector has a surplus of yield-hungry investors over good quality borrowers. Hopefully, this will be a short-term phase because, with interest rates dragging along at alltime low levels, right now represents the most attractive borrowing opportunity for decades. This holds true whether you are a consumer wanting to raise a mortgage or the owner of a successful, creditworthy SME waiting for the opportunity to grow the business. It is all a matter of confidence combined with awareness of what alternatives are available.