Social lending websites, which enable individuals to provide loans direct to small businesses, or to each other, are gaining more popularity, especially when interest rates continue to remain at an all time low.
Peer to peer lending platforms like Funding Circle allow members of the public to invest their money to small and medium size businesses, and receive competitive interest rates that are better that any cash ISAs available on the market. This service is also attractive to small companies that could use this website to get the finance they need, fast. For members who invest their money via the Funding Circle website, the average interest rate they currently receive is 8.7% gross and they can spread the risk by investing as little as £20 in each business. Another attractive feature on offer here is the control investors have over managing their money. The website is flexible and transparent and allows lenders to access full information about the businesses looking for investment. They can see detailed information about what the loans are for, full business account details and there is also the possibility to engage with the borrowers directly and ask questions about how the loan will be managed.
The leading veteran of this type of innovative lending platforms is Zopa. The company started seven years ago and has more than 40,000 savers who lend to personal borrowers. To date, £220 million have been lent to 43,000 borrowers and the current average interest rate the investors get after charges and annualized defaults is 5.5%. This website allows investors to spread their lending loans into small chunks of minimum £10.
Peer to peer lending markets are expanding- they appeal to both borrowers and lenders, particularly every time there is more negative media reporting about the banks. In this context, more and more savers consider this alternative type of investment, whilst personal borrowers find that via those platforms it is easier and quicker to borrow and get a rate that is better than what banks or credit cards may offer.
This alternative way of borrowing also appeals to the small and medium size businesses, as the access to the finance they need is quick and they can get very good rates, with investors competing to lend in an auction style setting where lowest bids win.