Growth in the alternative lending market is beginning to take off worldwide, not just in the UK. While the invoice finance market in Europe continues to grow, peer-to-peer lending networks are also taking off across the world.
Peer-to-peer lending lets individuals or small businesses loan directly to companies. This model is taking off particularly well in China due to the high number of small entrepreneurs deemed too risky to lend to by the banks. Large numbers of peer-to-peer websites have sprung up, potentially providing funding for the millions of ‘micro-entrepreneurs’ and the 200 million rural poor who are unlikely to have access to traditional sources of funding. Obviously, this is a huge opportunity for peer-to-peer networks.
Peer-to-peer networks in the UK have also received some good news. They are going to qualify for up to £100m in government funding as part of the government’s efforts to reinvigorate the credit market for SMEs. The government is funneling money into the alternative lending sector as a way to supplement the banks, which often cannot provide the credit that many SMEs need.
The concentration of bank lending into the hands of a few big banks is a problem in the UK, especially when SMEs are being looked to to boost the UK economy. Peer-to-peer lending and invoice finance are both ways to introduce some more competition into the lending market, giving small businesses more options and accessibility to funding.
With the growth of alternative lending, more SMEs will be able to get access to the funds they need. Seeing peer-to-peer lending grow across China shows how well suited it is to the economic make up of the country. Though there are risks to this form of financing – particularly for the investors, who are not guaranteed to see their money again – it’s a step in the right direction to see the SME funding market being enriched.