In a somewhat surprising turn of events, banks are now joining ranks with peer-to-peer (P2P) lenders - apparently to help the UK’s SMEs prosper. On the one hand, this is good news. With traditional and alternative finance working together, SMEs should be able to access business critical finance far more successfully. On the other hand, though, peer-to-peer banking does raise some confused eyebrows.
Given that banks are rejecting more and more applications for financial assistance and removing business overdrafts, it’s unclear how partnering with a P2P lender will change the current status quo. It’s a potentially frustrating, rather than helpful, situation for small business owners.
An added concern is that, while P2P lending is still relatively new, a few players have already gone bust. A lack of due diligence by some lenders has resulted in several large defaults and businesses that haven’t made it. Given how important due diligence is for banks, investing in P2P lenders who aren’t following best practice is a questionable move. However, a long-term major investment that will continue to support the P2P sector with funds and business guidance could be the helping hand the sector needs.
If banks are truly committed to the P2P model and how it can benefit the nation’s start-ups and thus the economy, they should buy these P2P companies now while they’re young and full of potential, not once they’ve established themselves as game-changing players in the market and can name their price.
Currently, it’s the non-bank investors who are the major backers of P2P lenders but they too should be worried about some of their investments. Those P2P lenders that want to survive, join the mainstream financial markets and ultimately compete with the banks need to check their lending criteria and take due diligence seriously.
Can traditional and alternative finance work together as peer-to-peer banking fusion? Possibly, but only time will tell. In the meantime, Nucleus will continue to do its due diligence thoroughly – and offer SMEs fast, flexible and transparent financial assistance, whether it be through our traditional invoice finance services, or an alternative business funding facility. If you want to find out more about what we can do for your business – get in touch.
Peer-to-peer banking: can traditional and alternative finance work together?
Eric joined Nucleus as a Sales Director covering Midlands. Eric is involved with developing new introductory sources, servicing existing ones and obviously following any introductions through from initial meeting to when they become Nucleus clients.
For the past 10 years Eric has specialised in providing working capital funding solutions for SMEs in the UK marketplace. Previously he successfully opened and developed a Birmingham office for both Bibby and Cattles (now Aldermore) before moving on to developing the Bibby construction finance business.
Eric has close working relationship with intermediaries such as accountants, bank managers, finance brokers, insolvency practitioners, national brokers and private equity houses. Eric graduated from University of Brighton with Honours in Business Studies.
In his spare time Eric enjoys playing golf, pool and snooker.