Telegraph Hub: How P2P can help your business grow: five key incentives

Author

Date

20th October 2016

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.

Peer-to-peer lending is becoming an increasingly popular way for businesses to get the money they need to expand.

According to recent figures from the Cambridge Centre for Alternative Finance, alternative finance business lending is 12pc of the market for lending to small businesses in the UK.

“These new channels of finance are increasingly moving mainstream,” says Robert Wardrop, executive director of the Cambridge Centre for Alternative Finance. Its 2015 report stated the sector had grown 84pc year on year and facilitated £3.2bn of loans, donations and investments.

Here are five ways in which peer-to-peer lending can help businesses.

1. Speed

Getting a loan from a high street bank can be a slow process, with many forms to fill in and documents to check. Although a peer-to-peer lender will also want to carry out checks, the process is often quicker, which can help if you want to move quickly to make an acquisition or take advantage of a growth opportunity.

2. Lack of personal guarantees

In some cases, lenders will ask directors to come up with personal guarantees when borrowing money, meaning that your own assets are tied to the repayment of the loan.

Some peer-to-peer lenders, such as ArchOver, do not ask for personal guarantees, relying instead on the assets of the borrowing business as guarantees – for example the Accounts Receivable for the company.

3. Better fit with some types of company

Not every company has a plan that makes it easy to get a bank loan or equity investment. The repayment schedule may not work with your company’s cash flow and expansion plans, for example. In some cases a P2P lender can be more flexible.

4. Value

While bank loans can be competitively priced, few companies can access them. Many companies have access to invoice financing but this is expensive and difficult to manage. P2P is usually cost-effective, easy to manage and readily available. Of course, it pays to compare the two.

5. Maintaining control

Other ways to fund your business, such equity crowdfunding or venture capital, involve giving away a proportion of your business in return for the money. P2P borrowing allows you to maintain control of the company.

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

Author

Angus Dent

Date

4th October 2016

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.

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.”

Falling Further Down the Rabbit Hole

Author

Angus Dent

Date

3rd August 2016

The rate at which the Bank of England is prepared to lend short-term money to financial institutions looks set to fall below its current historic low of 0.5 per cent to 0.25 per cent, a move designed to stimulate the stuttering British economy. However, I would argue that further suppressing the cost of credit will do little to help British businesses battling Brexit uncertainty. Instead this rather negligible Interest Rate reduction will inflate the debt bubble while further punishing pensioners and savers, thereby diminishing waning economic confidence; thus costing companies dear. So what is the MPC’s rationale?

In Money Creation in The Modern Economy – a paper published by the Bank of England in 2014 – Michael McLeay, Amar Radia and Ryland Thomas explain how commercial banks create money via the provision of loans to households and companies. Contrary to economic theory outlined in most textbooks, ‘rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits’ (McLeay et al., p.1, 2014). It is thus the commercial banks (not the Bank of England) who create money. The interest rate – otherwise known as the ‘repo rate’ – acts as the ultimate constraint to commercial bank’s ability to create money as it determines the price and consequently the profitability of lending. By lowering interest rates, the MPC are reducing the price of credit and thus imploring commercial banks to conjure up more money by writing new loans.

The MPC hope that more ‘fountain pen money’ – money created at the stroke of bankers’ pens – might help to sand over the cracks our decision to leave the EU has created. It will not. Rather, it is a vote of no confidence in the UK economy, an economy currently plagued by uncertainty. What’s more, it proves we have learnt little from the 2008 financial crisis. As Mervyn King (2010) suggests, ‘for all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary – indeed absurd – levels of leverage represented by a heavy reliance on short-term debt.’ Would raising interest rates be such a bad idea?