EU peer-to-peer lending market well-placed to overcome challenges

04 February 2015
by redflagalert -- last modified 04 February 2015

The peer-to-peer lending market has been growing rapidly for a number of years and that trend looks set to continue despite some considerable challenges to its progress across Europe.

By Conrad Ford

The peer-to-peer lending market has been growing rapidly for a number of years and that trend looks set to continue despite some considerable challenges to its progress across Europe.

It was recently revealed that peer-to-peer lending accounted for £1.2 billion worth of business loans in the UK alone over the course of 2014 and confidence in the associated processes appears to be growing throughout the EU.

Regulatory challenges

Peer-to-peer lending allows for businesses of all sizes and in any industry sector to attract and enable investments from third parties who see fit to provide loans on specific terms. The markets for these kinds of services and arrangements are currently being regulated at national level, although the European Commission has consulted on the subject and is rightly keen to ensure that quality standards among operators are maintained across the EU.

Growth in bank lending

To a large extent, the progress of peer-to-peer lending and crowdfunding processes more broadly has been driven by the relative lack of appetite among mainstream lenders to provide loans to small businesses. If this appetite were to increase in EU countries over the coming months and years it could be that this will hinder growth in the peer-to-peer sector.

Higher interest rates

Another potential threat to the growth of peer-to-peer lending as a popular phenomenon and a means of accessing finance would be the return to higher interest rates across the Euro Zone and in other EU member states. The reason being that much of the appeal for lenders in using peer-to-peer services is the prospect of generating interest-based incomes that are considerably higher than those currently available through traditional savings accounts or investment funds.

Lack of credit quality

Other issues facing the market for peer-to-peer lending services include a relative lack of credit quality among the kind of businesses that tend to pursue such routes to finance. In short, there remains a relatively high default level among borrowers using peer-to-peer platforms and this could cause problems for the industry as it matures across Europe and on an international basis.

Competition

Peer-to-peer lending has gained very notable traction as an alternative funding option, particularly among small businesses, in the UK, Europe and elsewhere since the aftermath of the 2008 Financial Crisis. However, it is likely that more alternative funding mechanisms will emerge in the coming years as new technological advances are made and a broader variety of funding solutions become more readily available to businesses right across the continent.

Nevertheless, if current trends continue there is every reason to believe that peer-to-peer lending will become an increasingly important part of the enterprise lending landscape across Europe.

Conrad Ford is the founder of Funding Options, which provides a range of online tools to help firms and their trusted advisers to manage funding and cash flow.

Funding Options is one of the UK's leading commercial finance intermediaries. The award winning service scans the market to find the finance options that best suit the needs of small and medium sized businesses. It has quickly become the one-stop shop for non-bank and alternative finance in the UK with a team of finance professionals that have experience in delivering solutions across the spectrum of business finance including Asset, Mortgage and Invoice Finance.

Funding Options