When we launched the Back our Industry campaign on 1 May, our aim was to convince the government to recognise the vital role peer-to-peer lending platforms can play in supporting the country’s small businesses and housebuilders.
The coronavirus business interruption loan scheme (CBILS) – a government initiative to support smaller firms during the pandemic – gave the P2P sector a chance to prove its worth.
A clutch of platforms – Funding Circle, Assetz Capital, Folk2Folk and LendingCrowd – went on to gain accreditation to offer CBILS loans. Over the past four months, these platforms have flown the flag for P2P lending as a mainstream finance product. Without exception, these platforms have been able to scale up their lending, attract new institutional funding, and distribute funds to struggling businesses quickly and effectively.
But with CBILS coming to an end on 30 September, there is a risk that P2P will once again be sidelined as a fringe financial offering. So we are repeating our request for the government to back our industry and let P2P play a role in rebuilding the post-Covid economy.
And here’s why.
P2P lending platforms have the technology and track record to process huge volumes of loan requests without compromising on quality. Starling Bank recognised this when it inked a partnership to fund £300m of CBILS loans via Funding Circle.
And Metro Bank’s acquisition of RateSetter can be seen as an endorsement of RateSetter’s credit-checking software, which will be used by the bank to ramp up its consumer lending activities.
P2P platforms have also proven themselves to be incredibly responsive and respectful of new regulations – even when those regulations limit the way in which their products are marketed, and to whom. This is a trait that some mainstream lenders could learn from.
As the economy faces down a deep recession and a long recovery, consumers and businesses will become increasingly reliant on credit and financing solutions, and this is likely to inspire a raft of new protective regulations. We already know that P2P lending platforms can rise to the challenge of hastily-introduced regulations, so they are well positioned to adapt to a changing marketplace without putting their lenders and borrowers at risk.
And finally, P2P lending platforms are simply good for business. Whether they are pivoting to institutional-only investment or maintaining a retail investor base, one thing that every platform has in common is their ability to consistently deliver inflation-beating returns.
Read more: Mixed views on the future of CBILS
Both savers and investors have been starved of interest over the past few years, as the base rate has been cut to a series of historic lows. With negative interest rates now on the cards, it will be more important than ever for investors to gain access to a diverse range of financial options, as part of a recession-beating portfolio.
P2P’s inclusion in government-backed lending schemes proves the vital role that they can play in the UK’s financial landscape, and this cannot end at the end of this month.
There has been speculation that CBILS accreditation will give way to access to the enterprise guarantee scheme (EFG). But P2P deserves more.
Access to the term funding scheme would allow more platforms to scale up and help even more businesses and households through this difficult time.
Government-guaranteed loans would help to reduce the risk to P2P lenders (both institutional and retail), while effectively giving authorised platforms a stamp of approval from the Treasury.
And greater public awareness of the benefits of P2P lending could significantly expand the reach of P2P platforms among both borrowers and lenders, ensuring that more people can access much-needed funding, and much-needed returns.
The clock is ticking on CBILS, but if it turns out to have been a stepping stone to mainstream inclusion, 2020 could end up being the year that P2P lending platforms finally got the backing that they deserve.