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Peer-to-peer banking: can traditional and alternative finance work together?

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.

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