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The Analysis Comment


Crowded house


A mix of ‘traditional’ and ‘alternative’ approaches can provide a robust future for the asset-finance sector


Simon Carter Director, Touch Financial simon@touchfinancial.co.uk


The new generation of ‘alternative’ lenders – crowdfunders and peer-to-peer lenders – have had a dramatic impact on the options now available to businesses looking to grow. They tend to be especially slick at the front end, using a


deliberately user-friendly online approach and quick decision making to engage with their customers in a way that is still fundamentally lacking compared with most other ‘traditional’ players. Indeed the traditional lenders have been


slow to react, or recognise the cannibalisation threat that peer-to-peer (P2P) lending already presents.


Profiling risk Such ‘new world’ firms may differ, however, in the way in which they risk profile prospective customers. Their model can be seen as being slightly less robust than traditional lenders, with personal guarantees and debentures not always required (although certainly preferred). Most P2P lenders have large marketing


machines that generate high levels of awareness and act as a great source of new leads. Their reputation, however, can still be affected by a high number of rejections from companies that fail to meet the lending criteria, and this creates an issue with confidence. It is important to point out, however, that


(experiencing the full process of ‘lend it... lose it... restrict it... repeat’!). The jury is, therefore, still out as to what impact the loss of


platform investors’ money will have on the P2P lending market generally, but this risk is offset somewhat by the ‘spread betting’ nature of the investors’ own journey. The principal P2P lenders are now so well established that


the potential for a


catastrophic PR disaster is also probably diminishing. The customer journey is improving and


investors are making a better return, but that does not mean that the market is risk free. The lack of any proper regulation allows scope for poor quality providers to enter the market with the fear of catching a cold. There are other concerns. Whilst single


the criteria is also evolving – at one end of the spectrum they will be flexible for the ‘right’ deal, but traditional security requirements, such as guarantees and debentures, that were once exceptional are now becoming the norm.


Enough experience? There are still concerns, however, that these businesses and their customers have yet to go through a full lending ‘cycle’


12


The customer journey is improving and investors are making a better return, but that does not mean that the market is risk free. The lack of any proper regulation allows scope for poor quality providers to enter the market


trades of invoices, in the P2P invoice finance space, is what features in the marketing material, our experience shows that 90% of the clients we introduce repeat invoice trades more than once. The question is whether this will make long-term pricing more


the overall


expensive than traditional providers, or whether – as we believe will be the case – P2P lenders will simply adapt the price to remain competitive as more trades are placed and even wander


into


providing a more traditional arrangement if required.


Conclusion Traditional lenders should certainly take note. P2P lenders and crowdfunders are already a disruptive force and, as a force for good, their greatest influence might be in obliging those in the traditional space to think harder and act faster in serving SMEs’ funding needs. CCR


www.CCRMagazine.co.uk February 2016


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