Tag: Borrowing

Telegraph Hub: How P2P is Bridging the Business-Loan Gap

Author
Angus Dent
Date

ArchOver has teamed up with The Telegraph to produce a series of articles to help educate investors on the UK Peer-to-Peer Lending sector. In a brave new economic and financial world, understanding different ways of managing your money is key to success. P2P Lending can help both individuals and businesses navigate a post-Brexit world, with the reassurance that it is a secured and effective method of protecting and growing your money.

As interest rates dive, new ways of raising returns on cash are sparking interest.

With the Bank Rate at a record low of 0.25 per cent and those with cash looking for reasonable returns, the peer-to-peer (P2P) lending sector is receiving a boost.

P2P lending sites offer businesses the chance to borrow money from individuals in order to expand, bypassing difficult-to-obtain high-street bank loans and replacing inflexible and sometimes pernicious invoice discounting facilities.

Some lenders receive returns in excess of 7 per cent on P2P lending sites, but risk losing their cash if the business goes under. This is the issue that Angus Dent, chief executive of P2P platform ArchOver, believes he has addressed with a unique form of security for lenders.

Mr Dent, a chartered accountant and technology business expert, founded ArchOver after realising there was a gap in the market for medium-sized loans for growing businesses.

“If you needed a £50,000 overdraft you could probably get it from your bank and, if you needed more than £3m, you could approach a venture capitalist,” he says. “But there wasn’t any reasonable way you could raise, say, £500,000 or so for your business.

“We also saw there were an awful lot of people who had money on deposit that wasn’t doing very much. ArchOver aims to put those people together in a way that is rewarding for everyone. The name refers to our platform, which arches over from the people with cash to those who want to borrow.”

Loans made through the ArchOver platform are “secured and insured”, which Mr Dent says provides “unparalleled investor protection”. The security policy involves insuring each borrower’s accounts receivables – the money owed by their customers for goods and services that have already been delivered – against the loan.

The main reason why company borrowers don’t repay loans is because their customers don’t pay them. Credit insurance successfully mitigates this risk. Given that most of the borrowers take credit insurance from Coface – an A- credit-rated supplier with a very good record of meeting claims, which represents a significant safeguard for lenders.

Different types of lending provide different types of security, and different types of security offer different levels of liquidity. By securing loans on Accounts Receivable he believes the security is relatively easy to value and liquidate, meaning that the likelihood of getting your money back in the event of a disaster is high. This compares well with property, which is often held up to provide great security, but which is difficult to value and often illiquid. That said, lending should only form part of a diversified portfolio of investments. “We believe people are grown-ups and should do their homework on their investments,” he adds.

The minimum that an ArchOver user can lend to any one borrower is £1,000, an amount that he believes means people will carry out the correct amount of research. “Most people will take an investment of £1,000 seriously,” he says, suggesting ArchOver is suitable for those with a portfolio of different investments, including those people who are managing their retirement income. “Our oldest lender is 89,” he confides.

business-finance

Lenders are encouraged to find out more about the company that they will be lending to, including the reason for borrowing the cash.

Some of the businesses that have borrowed from ArchOver have included timber frame restoration specialist TRC, healthcare service provider Spirit Healthcare and accountancy business Spain Brothers. In each case, the company found ArchOver offered a better service, a combination of lower price, much lighter touch processing and no personal guarantees than they could get from a bank or invoice discounter.

So far ArchOver has facilitated £22m of loans with no defaults or losses, and Mr Dent believes the uncertainties created by the Brexit vote could further increase demand for the product. “While some businesses will decide not to expand, others will need to find growth finance and, with interest rates at 0.25 per cent, there is more demand than ever from those with cash who are looking for new ways to make their money work for them.”

ArchOver breaks through the £20m loans barrier – with no defaults or losses.

Author
Alex Taylor
Date

News that ArchOver has succeeded in passing the landmark figure of £20m in business loans in less than two years has confirmed its reputation as one of the UK’s fastest growing crowdlending platforms.

Commenting on the achievement, CEO Angus Dent said: “Naturally we are pleased at reaching £20m because it confirms that our unique ‘Secured and Insured’ business model can withstand the challenges of the market place in even the most difficult times. SME borrowers have been understandably cautious because of the uncertainty created by the Brexit vote, but confidence is slowly returning and our loyal core lenders have been willing to step up to the plate to meet demand.”

“This is the best way to answer critics of the alternative finance sector, particularly since our business model prevents us from lowering lending criteria even if we were tempted to go down that path. Good quality borrowers will always be able to find the finance they require if they know where to look and lenders, faced with the prospect of even lower returns from traditional deposits, will be even keener to secure decent returns on their money in return for an acceptable level of risk. The market is working, despite the criticism and best efforts of the detractors to knock it off course.”

 ArchOver trophy

Was it acceptable in the 80’s?

Author
Angus Dent
Date

So the results are in, we have stood up as a nation to be counted and the surprise result is that rose tinted nostalgia seems to have taken us in a direction none expected – back to the golden era of the 80’s. There’s the funny side of course, big hair, even bigger shoulder pads and at the end of the decade enormous mobile phones. Of course it’s the bleaker side that’s worrisome; British soldiers on the streets of the UK, 3m+ unemployed, a surrogate civil war with the miners……That’s said, the effect that had on asset prices was only beneficial to the humble man on the street  and you could get married, buy a house and an Aston Martin, as a poorly paid Chartered Accountant ( I know I did ). Pity about all that equity that might go to waste and for those who came along later and paid higher prices.

 

brexit flags

 

What we didn’t have in the 1980s, or at anytime until this decade and really only the last couple of years in anything approaching a measurable volume was an AltFi sector. A real alternative provider of finance that may just keep the economy going through this particular period of uncertainty and beyond.

 

Substantially AltFi was born of the last financial crisis; a hunger for yield from those with cash and a need / want to borrow from people and businesses. Some of us saw this opportunity and established businesses that arch over from the lenders to the borrowers. The problem is that the sector while growing very quickly in macro economic terms remains small when compared with the banks. Mind you much micro economic theory, some of it written and tried in the 1980s, suggests that the biggest effect can be had on the margin, deploying relatively small amounts of money.

 

What might this mean; the banks continue to carry the base load in value terms and AltFi provides finance alongside. The banks continue to lend to the larger corporates and AltFi takes more of the personal lending and the lending to small and medium sized enterprises. This of course is what has been happening over the last seven or eight years. I expect that our sector, the AltFi sector has just received a boost. Crisis makes us all more cautious, makes us retreat to where we feel most comfortable. For the banks that’s corporate lending for AltFi its SMEs and personal lending. So we’ll both be playing to our strengths, working in the areas we know like and understand.

 

One other thing makes me more optimistic; increasingly AltFi and the banks are working together. We’ve moved from a position of say three years ago, when we, metaphorically, spat at each other to one today where we’ve realised that we provide different services and should therefore work together. Working together we’ll get the UK economy through this crisis, maybe without it even becoming a crisis, and forge a larger more robust AltFi sector in the process.

 

Are Commerzbank about to blaze the P2P Lending trail?

Author
Angus Dent
Date

In the Twittersphere, the word “Fintech” tends to provoke a lot of hot air. Speculation leads to everything from wild estimations and massive valuations to doomsday predictions and floccinaucinihilipilification. You aren’t going to get that word into 140 characters easily, but the exaggerated fervorous lexicon endemic to “#FinTech” dictates that you should try to if you want to fit in. And it isn’t just Twitter; print media and digital news services regularly produce supercharged opinion articles that try so hard to “think the unthinkable” that the “thinkable” (and usually the reasonable) is of seemingly negligible importance. As I’ve said before, that is what happens when you create a portmanteau that attempts to define such far-reaching businesses and sectors. Readers will start to think that Bitcoin price fluctuations become, all of a sudden, of tantamount importance to a Peer to Peer lending platform.

In light of this, Crowdfund Insider’s headline “Germany’s Second Largest Bank, Commerzbank, said to Launch P2P Platform this Year” seems to suggest a familiar speculatory path is being trodden, particularly as it comes from “informed sources” whispering in the ear of the P2P-Banking.com blog. The article claims that German behemoth Commerzbank plans to launch its own P2P Lending marketplace, “Main Funders”, in 2016. Yet what is particularly interesting here is that this would be the first sign of a bank directly implementing an in-house peer-to-peer lending operation. Why is this interesting? Because it makes a lot of sense, and it could herald a huge change in the way people see peer to peer lending. Plenty of banks, both big and small, are showing an increased appetite for lending across platforms in both the UK, US and Europe. Under German law, only banks can fund loans; to bypass this all existing P2P lending companies in Germany partner with a transaction bank which originates the loan and then sells the proceeds (repayments and interest) to the investors: a complex procedure that is hardly widespread. By building its own platform, Commerzbank would circumvent some of the legal hurdles and provide the tailored, modern and agile solution to SME borrowing that the banks in the UK can’t (or won’t) provide, whilst also offering investors and savers an increase on the miserable rates they are all too used to.

Commerzbank has Main Incubator as their fintech accelerator offering venture capital to start ups, so it is an area that they should know well and more importantly have a vested interest in. This may sound like bad news for smaller peer to peer lending platforms who may fear being muscled out. However, it is more likely a case of “imitation is the sincerest form of flattery”: established banks bring the wealth, history and stature that could help Peer to Peer Lending escape from the bubble of hot air that is “Fintech”. However, is this really P2P lending? We have a bank, a highly regulated entity, entering a market that isn’t so highly regulated, certainly in terms of capital requirements. One of the things that has driven the banks away from SME lending is the large amounts of capital they have to put aside for these loans. This is behind the drive towards Invoice Discounting, which requires less capital to be put aside. Commerzbank’s solution could be that their P2P requires less capital than ordinary SME lending. There’s also the question as to whether Commerzbank, and other German banks, have made sufficient provision for the bad lending of the past. Is this a case of smoke and mirrors in the form of moving things around the balance sheet?

What is certain is that banks’ enthusiasm for P2P lending would produce solid, mutually beneficial relationships that can help SMEs and savers alike. Yes, there will inevitably be teething problems as the banks adapt to the fleet-footed world of P2P lending and the P2P lenders adapt their models to fit the strict regulatory processes of the banks. But Commerzbank’s embryonic P2P marketplace could be the trailblazer that sets the way for future banking… if it exists at all.