What is peer-to-peer lending?
Peer-to-peer (P2P) lending enables individual and corporate investors to lend to small and medium-sized businesses. Access to this type of alternative finance begins when borrowers enter their requirements into an online application portal allowing them to benefit from rapid underwriting and hopefully approval. For an investor, P2P platforms offer the opportunity to identify borrowers who fit your lending appetite and even the ability to have an automated selection process where you can set predefined criteria for the loans you wish to purchase and let the system do all the work.
Overall, a P2P lending platform is effective because it perfectly matches borrowers with their investors. If you are an investor, P2P lending provides you with the ability to invest in an alternative asset class, helping you diversify the risk within your portfolio.
The Huddle platform explained
The P2P lending market has grown rapidly in the UK and is currently at an investment level of more than £8.7 billion. With so many different options available, it is important to fully understand every element when choosing which P2P platform you wish to invest through.
Launched at the Master Investor Show in March 2017, Huddle Capital has experienced early success in a competitive marketplace. Attracting more than 100 investors to our platform within 30 days of launch, we believe in supporting investors and borrowers in their journey to understand everything P2P! So, whether a long-standing and traditional investor, or somebody new to making investments, the option of placing some of your investment assets outside of the FTSE 100 is worth considering and discussing with us.
Brexit: a ratings game?
With this week witnessing the first interest rate rise in a decade, it appears that Brexit looks likely to be a high-interest rate environment, with the distinct possibility that consumers may face higher borrowing costs. Nearly a decade ago, the Bank began cutting rates as the economy went into recession following the financial crisis. Rates fell to 0.5% in March 2009 and remained at that level until a further cut to 0.25% in August last year, after the Brexit vote. The last time a similar rise occurred was in July 2007, meaning that a whole generation of borrowers have never experienced an increase in their borrowing costs.
Even though the pound has rallied somewhat of late due to the expectation of an interest rate rise, it remains 10% lower than on the day polls closed on 23 June 2016, the day of the EU referendum. However, the weaker pound seems to have boosted demand for UK manufactured goods, ameliorating some of the reliance on consumer spending to facilitate economic growth. Indeed, The Bank of England reported on interviews held with approximately 700 businesses during June/July of this year, which suggested that activity had increased in export supply chains and that goods which were previously imported are now being produced in the UK.
So, perhaps, despite all the furore around Brexit, and a weakening pound, internal expansion opportunities are being created. And whilst many may view Brexit as negative, some SMEs are and will continue to see it as positive. In July of this year, Government figures revealed that British exports had boomed by 5.8 per cent, since the country voted to leave the EU.
Statistics showed that the total value of UK goods and services sold overseas was at a record £547.6 billion. Therefore, as the UK leaves the EU, SMEs may consider taking advantage of growing global markets and ultimately help to develop trading relationships which are of national interest. The other side of the argument is that rising interest rates and a weakening exchange rate will mean that more foreign businesses are likely to consider their own ‘remain argument’ – to stay in the UK, or go?
However, at what is potentially an optimum time for UK businesses to export their goods and services abroad, some money will be required for expansion. Unfortunately, the traditional banks seem to be closing their doors to ever increasing numbers of SMEs, and even if the doors are open there are likely to be some restrictions. SMEs are being charged more than ever for business banking and have increasingly poorer terms, which include increased interest rates on overdrafts, restricted access to additional finance, and even having their lending totally restructured. Businesses will, therefore, find it difficult to operate effectively with such uncertainty.
However, at odds with this traditional banking mindset, is the approach of P2P platforms, who are welcoming SME borrowers with open arms. And, in a similar way, investors will see far more opportunities for P2P investments post-Brexit, through the ability to lend to high-quality SMEs who may just be unable to secure funding via the traditional route. Investors will also benefit, because unlike consumer lending, SME lending is more secure due to the likelihood of additional assets being available to secure the funding. They are also attractive from an export point of view, through the expansion of capital. Added to this, investors utilising a P2P platform as their route to investment will be unaffected by market changes, because they are investing in an SME’s growth, compared to consumers borrowing for their own consumption.
Profound economic change is normally brought about by a complete shock to the system, and Brexit is clearly that. But change can also represent opportunity, in a similar way to the opportunities found through a P2P platform, for investors