TRADE finance is becoming a targeted area of growth for peer-to-peer lending platforms.
MarketInvoice, which provides invoice financing, has signalled its intentions to expand into trade finance, while Sancus Finance, formerly Platform Black, says businesses are increasingly turning to the product for working capital.
Trade finance comprises a product such as a letter of credit from a bank that guarantees a business will be paid for the goods it is sending.
Now platforms such as MarketInvoice and Sancus Finance are giving P2P investors a chance to fund these deals.
“Many businesses have relied on traditional bank funding and still do but they are increasingly searching for innovative forms of finance that help them access the finance they need when they need it,” said a spokesman for Sancus Finance, who added that trade finance was becoming an increasingly popular option for firms.
Anil Stocker, chief executive and co-founder of MarketInvoice, recently told Peer-to-Peer Finance News that the company has long-term plans to enter the sector.
“If we start to get into trade finance, helping people trade around the world, that automatically turns us into a global business,” he said.
P2P lenders’ interest in trade finance has also been noticed by the Asset Backed Trade Association (ABTA), of which Sancus Finance is an affiliate member.
“With low interest rates from other investment opportunities and the economy still relatively benign, the increased interest in investing through P2P platforms is understandable,” said an ABTA spokesperson.
“However, there are a particular set of skills that are required to successfully fund trade, both domestic and even more so internationally. The successful P2P platforms will be the ones that are able to manage the risks effectively, not those that spend the most on marketing themselves to potential investors.”
Investors in the sector, such as London-listed fund P2P Global Investments, are also seeing the benefits of trade finance as they look for more asset-backed opportunities.
“Structural changes brought about by the disintermediation of the banks have resulted in exciting opportunities in small-sized private credit assets,” said Simon Champ, chief executive of the trust’s investment manager MW Eaglewood Europe.
“The opportunities that began in unsecured consumer lending and smaller-sized loans are now expanding rapidly into secured lending opportunities in trade finance.
“As non-bank trade finance originators increase their reach and ability to scale, we expect to see a growing number of opportunities from sophisticated non-bank invoice finance firms.”