P2P lending matches businesses in need of capital with approved investors looking to lend. This, as the rather unwieldy phrase goes, ‘disintermediates’ middlemen like banks and other financial institutions.
The stiffer regulation has been a while coming. The FCA has been responsible for regulating P2P lending since 2014 – and yet, years later, the major P2P platforms still hadn’t received full authorisation to operate, with most operating on interim permissions.
Data from the Peer-to-Peer Finance Association (P2PFA) illustrates just how vital P2P lending arrangements have become for businesses. P2PFA platforms facilitated more than £800m of new lending during the final quarter of 2018. Cumulative lending among P2PFA platforms has now exceeded £5.5bn for business lending.
These ramshackle arrangements couldn’t be sustained as the sector transitioned from early adopter to early mainstream. The collapse of Lendy, a P2P network that offered secured property bridging and development loans, likely played a part, as well.
The P2P sector’s runaway success in the UK means better regulation is a good thing because it’s what the sector deserves. For many British businesses, these lenders are a quick, safe way to access the finance they need.
Advisers and the future of finance
The most notable regulatory change is the new limit on investments in P2P agreements for retail customers new to the sector of 10% of investable assets. This limit is an important means of “ensuring that they do not over-expose themselves to risk”, the Financial Conduct Authority (FCA) said.
The investment restriction will, however, not apply to new retail customers who have received regulated financial advice. This provision is emblematic of the new role advisers and accountants can play in a flattened, more dispersed lending ecosystem.
Good advice will never go out of fashion. As the amazing potential of technology to make lending simpler and more democratic manifests, its accountants that’ll be the key business finance guides.
More generally, these new financial arrangements – like P2P lending – present a unique challenge. There is no question that banking, payments, finance and accounting are going to change rapidly in the next few years. But the problem for accountants and businesses is not knowing how it’s going to play out.
There’s a confusing array of choice. In these nascent, exciting days, there’s a risk of backing a particular provider or avenue, only to discover later that they chose the wrong option for the business.
For it all to work, what’s required is the synthesis of guidance and technology. We have to reckon with the fact that while businesses now have a healthy amount of choice, many business owners are adrift and confused.
Adviser-led tech tools like Capitalise tackle this problem head-on. Our platform matches businesses with P2P lenders (among many other options!) who can not only provide your business with the funds needed to grow but have a proven track record of successfully financing similar companies within your sector.
Choice isn't only about lowering the barriers to entry, after all. There's a goldilocks effect at play, too. Getting the finance you need is great. But with more lenders, canny businesses armed with good advice can get finance that's just right.
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