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Alternative Finance blog

Benefits of P2P Finance & Securing its Future

Benefits of P2P Finance & Securing its Future

4 months

P2P finance has evolved over the last 7 years. Peer to Peer is triple edged, you have the borrower, the lender/investor and the platform. They all need to be happy with a deal for it to work.

If a platform proposes a bad borrower they damage their reputation and lose investor confidence. If they propose lower risk deals with low interest rates they risk not attracting investors. If they propose higher interest rates they risk losing borrowers and if they charge too much they price themselves out of the market.

It is a masterful balancing act between risk and reward.

However, there are benefits for both borrower and lender. P2P platforms are often leaner & less restricted than larger financial institutions. They usually move quicker, have the latest technology and often take security over items that banks won’t. This gives entrepreneurs and developers the funding they deserve and delivers higher interest rates to investors who are prepared to take measured higher risks.

The new crowdfunding rules that came out 9th December 2019 have improved transparency for the investor which will undoubtedly enhance the industry's reputation. It’s sad however that some platforms have stopped taking investment from retail investors such as LandBay and have been taking credit lines from institutions. This means they can get larger sums of money and have the ability to draw on it as and when needed. We may see more of this in the future and the government needs to step up to help these platforms. The British business bank has helped the biggest platforms such as Funding Circle & Ratesetter; is it time for them to look at other solutions that can support smaller platforms and help this industry grow?

The P2P industry has the ability to boost our economy with much needed capital and provide retail investors with better returns. But it is getting harder for P2P sites to exist if they don’t have flexible credit lines from institutions to invest alongside investors.

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