The future of SME finance

Business finance remains one of the biggest hurdles to SME growth and an often discussed topic amongst owners and managers. P2P lending is a disruptive new option.

In the past six months P2P, or peer-to-peer lending, has become an option as an alternative source of capital and promises business owners easier access to funds without the sometimes complicated bureaucracy of other lenders.   

Put simply, P2P is an online process where people who want to borrow are matched with those who want to invest or lend. It bypasses banks, avoids overheads and provides better interest rates for borrowers and lenders.  

The technology behind P2P brings people together directly online. With no middle-man investors or lenders can earn higher returns, explaining its popularity when interest rates are low and other investments are unattractive.  

For SMEs, P2P can offer quick and easy finance to purchase assets, obtain working capital or fund expansion.   
Freeing up access to support the productive economy was one of the main reasons why P2P platform Lending Crowd opened for business late last year with a focus on business loans up to NZ$200,000.

“As a new option P2P makes business finance easier and cheaper, so it doesn’t become a ball and chain.“

Managing director Wayne Croad says the company’s genuine aim is to give SMEs an easier and lower cost option to borrow.  
“P2P is an innovative finance option to support New Zealand businesses,” he says.  

With around 460,000 businesses of less than 20 people, employing about 900,000 and generating about a third of GDP, the SME sector continues to be the engine room of the economy, so there is always room for more finance options.  

“Both SME and vehicle financing needed a shake-up and the technology behind P2P has made this possible,” Croad continues.
“SMEs are often frustrated by the complexity of getting finance quickly and easily. Many find bureaucracy and high interest rates from existing funding sources, including banks, limit their financial elbow room and ability to grow.

“As a new option P2P makes business finance easier and cheaper, so it doesn’t become a ball and chain. It also gives people an opportunity to invest in the productive economy with balanced risk and returns. For many this is an alternative asset class.  

“This matching of needs between SME borrowers and investors is good for business, jobs and the economy,” he says.

What’s the difference?
Of the current five P2P companies operating in New Zealand, Lending Crowd is different in that it offers a higher loan limit to those who meet criteria as prime bank grade borrowers.

All loans are secured by a registered vehicle or vehicles, a second security of residential or commercial property, or a combination of both. 

A1 grade borrowers are able to obtain a market-leading loan rate of around 8.95 percent for a business loan and 7.90 percent for vehicle loans. There are four ‘buckets’ of borrower loan risk ranging from 7.90 to 19.75 percent. 

“We looked extremely hard at what really matters to borrowers and investors and built an online process to drive down the cost of borrowing,” says Croad.  

“The flip side is investors know all borrowers have skin in the game, or security of an asset, that’s baked into all loans at inception. We also promise 100 percent transparency around fees,” he says.

The P2P process has also enabled Lending Crowd to take a different approach to vehicle financing, another common need for SMEs. Cutting out intermediaries and their commissions means better interest rates. 

Lending Crowd has evolved out of Finance Direct, a well-known independent national Non-Bank Deposit Taker (NBDT) with a 16 year history. Its P2P approach is based on years of experience in the offline management of borrowing and private lending.

Article supplied by Lending Crowd. For more information go to www.lendingcrowd.co.nz 

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