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Why lending diversity and quick access to credit is critical for the future

Date 21st July 2016 //
Author Giles Andrews, CEO, Zopa
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We tend to think that the UK has one of the most stable financial systems in the world post-credit crisis, but a recent report from the New Economics Foundation on the UK’s financial stability ranked our financial system as the least resilient of the G7 countries, trailing behind Japan, Germany, France, Italy, the US and Canada.

However, amid this rather gloomy analysis was an interesting and encouraging point for those of us in the peer-to-peer lending industry: it concluded that mechanisms that introduce diversity into the economy are the best route to improved resilience, outlining growth of peer-to-peer as one of these scenarios.

In particular the report highlighted the growth of peer-to-peer business loans, from £200 million in 2013 to £902 million in 2014. Most of these loans go to SMEs, and the report projects that in five years peer-to-peer business loans could account for 25% of total bank lending to SMEs if the current growth trajectory continues.

It is no secret that SMEs have been poorly served by banks in recent years. Whereas people and policymakers seem to recognise the importance of encouraging SMEs as a way of driving our economy forward, this hasn’t translated into small business loans being approved. They have remained scarce, with businesses facing extensive paperwork and a lengthy wait to find out if they have been accepted.

At the same time, the alternative finance market has developed rapidly, providing businesses with financing options, like Funding Circle for SMEs, or helping emerging businesses get off the ground via crowdfunding sites, such as CrowdCube and Seedrs. With awareness around the sector growing daily, it makes sense that business owners explore these alternatives to the traditional route of accessing finance via banks.

For the UK’s 3.5 million sole traders in particular, quick access to credit can be business critical. Here at Zopa we provide loans of up to £25,000 for sole traders to help them grow their business. Our borrowers have used Zopa to help fund all sorts of business activities, from buying new equipment or taking out new leases, to creating advertising budgets or helping their cash flow. The application process is straightforward with clear criteria, and the money can be in the sole trader’s account within a week, minimising any business disruption.

The government is making much of encouraging sole traders to grow and employ their first staff member. Access to credit is essential to this, but the larger banks’ approach to loans seems out of step with the realities of running a business. This presents a big opportunity for portals like the ABF and platforms like Zopa to support sole traders’ businesses, moving the industry towards the 25% market share predicted by the New Economics Foundation.

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