Leasing Life took a trip down to the Edgware Road in London for the LendIt Conference in October, an expo-meets-conference affair housing p2p alternative lenders.
While the p2p model has been dominated by consumer lending, the thing I took away from the conference was that p2p is slowly but surely looking to target commercial finance, and becoming part of the conversation about alternative finance that is growing louder and louder as time moves on.
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It’s not one to ring the strategy director about just yet, but there were a few interesting case studies and points to look at amongst the exposition stalls.
Take p2p SME lender ‘lendix’ for example. A lender targeting the French SME market, it boasts a platform distributing lending by individuals and institutions to French businesses of between €30k to €1m.
This isn’t going to trouble the big banks, but it’s providing direct lending to an SME segment that was only previously accessible by the banks.
Returns on investments for individuals by lendix sits at between 4%-9%, while gross returns for institutions sit around 6.5%, which isn’t bad (if you accept a higher risk to capital as the lender.)
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By GlobalDataAnother French lender, finsquare, runs person to business lending from between €3k to €1m, and specialises in short term loans.
I chatted to Bill Kassul of Ranger Direct Lending, a US-based p2p-related investment trust that has closed a fund of around £140m, to target SMEs in asset classes across real estate, invoice receivables, and equipment finance.
From what I understand, a second fund is being considered after the success of the first.
Once American private capital moves into markets it’s a sign of serious intent.
The development of the crowd funded commercial finance model is not going to be without hiccups.
In September’s issue of Leasing Life, Louise Ikonomides, risk managing director at VLS, pointed out the p2p model is yet to experience its first confidence-shaking fraud.
Information is starting to emerge on what happened to Norwegian lender Trustbuddy. What looked like mismanagement of the books at this SME p2p lender, revealed a more serious cherry picking of good loans by staff, who were lending cash through the platform, over new funders.
The rumours are that contributors to the platform had their money thrown at bad loans by the Trustbuddy team with no access to the returns from good loans.
Yet the way p2p spreads its capital is innovative at defeating large scale single defaults, as the theory should go.
With the growth of the p2p sector of the alternative lending model we are seeing two things.
The reorganisation of where the capital being lent out is coming from, as large banks refuse the smaller transactions based on the economies of scale.
And two: the battle of the models, as established lenders, with their centralised credit, eye up the hyped new guys with their crowd sourced finance. Some have started working in partnership, like RateSetter and Metro Bank.
Which traditional lenders engage most effectively with the challenge of p2p will yet to be seen.
