Rob Pailin is managing director at Assetz Capital
As the alternative finance market has become saturated with different funding options, it can be difficult for brokers to determine the best solution to suit their clients’ needs.
Traditional banks tend to use attractive headline rates to entice potential customers, but have generally cut down on lending since the financial crisis. This, coupled with difficult and time consuming application processes, has meant that brokers are beginning to look elsewhere, but they may be missing out on the best possible deal.
Having emerged in 2005, peer-to-peer (P2P) lending was introduced to give borrowers more choice and provide greater access to capital. P2P lending has since grown exponentially to become a hugely popular form of alternative finance, and has been tipped to become the main challenger to traditional banks in the coming years. The numbers speak for themselves. Statistics from the P2P Finance Association indicate a 350% increase in cumulative lending between 2014 and the end of 2016.
This growth can largely be attributed to advancements in technology. As many people now manage their funds online and on the move, the P2P market has adopted new methods to provide lenders and borrowers platforms to exchange cash effortlessly.
Despite this, P2P is often overlooked by many borrowers. Although the figures are rising, it is still not considered as a mainstream platform for funding, even though it could be a lot more rewarding to both the brokers and their clients.
It can certainly be more financially rewarding as P2P lenders are in a position to offer more competitive rates to borrowers. This is largely due to a lesser focus on infrastructure and administration, which in turn results in lower interest rates. Due to the lack of lender overheads, they are also able to charge borrowers a significantly smaller fee than high street banks.
If you don’t want to get stuck under a pile of paperwork, it also offers a welcome reprieve. Borrowers can construct a facility using online platforms, which will detail the interest rates offered and the terms of the repayment, which is especially useful if finance is required in a short time-frame. As a result, the process of applying for a P2P loan is a lot quicker than many other forms of funding, as commercial mortgage loans typically close within 30 days or less.
Loans can also be tailored to fit the specific needs of customers, with fixed rates available to allow customers to budget effectively for the full term of the loan. The flexibility of loans means borrowers can cover unexpected costs or finance planned purchases at more affordable rates, meaning P2P finance is a great option when situations happen to change at a company.
P2P lending can also be used for more niche forms of funding. In particular, P2P finance has the properties to make it a viable alternative for brokers sourcing a commercial mortgage. Alongside competitive interest rates and low fees, P2P includes interest-only periods and longer amortisation profiles. It also allows for seasonal repayments, which are important for businesses that perform stronger in certain parts of the year as it means they can maintain a consistent level of growth and not be pegged down by large repayments.
As part of an initial tailoring process, P2P lenders have an understanding that some customers will need to remortgage a property to release equity for the business and commercial mortgages will allow customers to free up locked in capital. At Assetz, we have a nationwide network of professional relationship directors across the UK, who have the ability to meet borrowers and brokers face to face to identify the best options available. Our team will then offer continued advice and support throughout the lending process, which can be much more beneficial that dealing with the traditional lenders.
It is no surprise that popularity of P2P lending is continuing to grow. Its flexible structure has meant that it can adapt to a range of situations, including commercial mortgages, where we have seen a large influx of enquiries in recent years.
Whilst 25% of borrowers that apply to banks have their loan application rejected, according to British Business Bank, other forms of lending have paved the way for businesses to obtain cash, with P2P lending becoming one of the most prominent solutions in the current market.