The Fed made one increase to the federal funds rate in December 2016 and economic market activity appears to be improving with the election of President-Elect Donald Trump; Rohit Arora of Biz2Credit says the outlook is optimistic for small business owners in 2017; with only one rate increase, borrowing rates are still low for small business owners and lenders are approving a higher percentage of loans; Donald Trump's plans to alleviate some of the burdens from Dodd-Frank on banks is also likely to help approval rates for small business owners. Source
[Editor’s note: This is a guest post from Ian Gurney, founder of the P2P money website. P2Pmoney.co.uk is a media partner and will be in attendance at LendIt Europe 2015 on October 20-21. In this post, he talks about changes in the p2p lending market in the UK.]
The last twelve months has seen unprecedented growth and change within the peer-to-peer sector in the United Kingdom, with peer-to-peer lending already having passed the £1.5billion mark this year. The announcement within the Budget of the introduction of the Innovative Finance ISA will ensure that change within the next 12 months will be greater still.
In order to keep pace with the growth within the sector, peer-to-peer companies are having to adapt and sometimes vary their business models. There is now a pattern of peer-to-peer companies moving away from the original peer-to-peer model where lenders are in control of lending rates, to a simpler model where lenders are advised the rate. The most recent company to move to fixed rates is Funding Circle.
It must be understood that even minor changes will affect the symbiotic relationship between lenders, borrowers and the company. The peer-to-peer sector is perhaps one of the most innovative and dynamic sectors, but we must also realise that people don’t always like change.
From a business perspective the rationale behind Funding Circle’s changes are valid and it is likely that they will benefit from this over time. A recent poll on the P2P Independent Forum suggested that over 80% of lenders who responded were not in favour of these changes, however it is likely that lenders who use the forum are more likely to be “active lenders” rather than “passive lenders”, and therefore are already getting higher than average returns on the peer-to-peer platform.
There have only been a few peer-to-peer companies that have significantly changed their lending model since launch. The most successful of these is Zopa, which has modified its lending model several times, with the most recent change to replace their previous market model with Safeguard loans. Unfortunately two other peer-to-peer companies that significantly changed their lending models are no longer trading, and alienating lenders was the principle cause of the downfall of one of these companies.
Another poll on the P2P Independent Forum showed – unsurprisingly – that companies that lenders were most likely to invest through was inversely proportional to the number of negative comments on the forum.
Lenders now have an even greater choice of peer-to-peer companies and risk bands, with typical rates between 2.9% AER and 15% AER before deductions available (and on one platform it was even possible to successfully lend your money at 99.9% AER). Peer-to-peer companies should not forget that peer-to-peer was founded by a dissatisfaction with mainstream financial institutions, coupled with a greater value proposition, and that engaging with lenders is essential to growing a successful business.