With the advent of the social media revolution, peer-to-business lending first rose to prominence as a way to get projects or campaigns, often in the creative industries, off the ground, and was used to get films made, albums recorded and charity appeals fulfilled.
Since then the sector has grown exponentially. The product range has diversified into multiple forms of finance and peer lending, which has become vital in providing the financial capital to help British businesses succeed in the wake of the economic crisis.
Traditionally, lending money to businesses has been a “top-down” model run by major financial institutions. We are now, however, beginning to see a marked change in the way in which small and medium-sized enterprises (SMEs) are able to access capital as business leaders are increasingly choosing to back other British businesses.
The Rise of the Leader Lender, a report commissioned by peer-to-business lender FundingKnight and produced by independent trends agency The Next Big Thing, found that crowdlending is attracting a significant number of business leaders who are using their own business experience to invest in and drive other companies to success.
This new breed of leader lenders, so called because through their investment they are helping lead British SMEs to economic recovery, are at the forefront of peer-to-business lending and, in keeping with wider societal trends, are being driven by three key motivations.
The first, and perhaps most surprising driver, is the leader lender’s desire to be part of a community and to give something back. A quarter of those surveyed said they like to get actively involved in their local community and nearly half of leader lenders said being able to help British businesses succeed was a motivating factor to use peer-to-business funding.
It is peer-to-business lending that is helping to facilitate this community involvement and continue to drive crowdlending forward.
The second key driver of the adoption of peer-to-business lending by the leader lenders is their ability to take control. Very few businesspeople now leave their investments entirely down to their investment manager. A more hands-on approach is taken by most; indeed almost a quarter of high-net-worth individuals questioned in the survey said they manage all their investments and seven out of ten reported they have some sort of role in managing their wealth.
Peer-to-business lending provides the ideal opportunity for businesspeople, and in particular retired investors, to stay in touch with the investment opportunities around them. A fifth of leader lenders said they had retired, but wanted to keep their hand in with business and an investment platform, such as the one provided by FundingKnight, which allows them to monitor their business investments closely, rather like they did the stock market throughout their career.
It is peer-to-business lending that is helping to facilitate this community involvement and continue to drive crowdlending forward
The final key driver for investors’ adoption of peer-to-business lending is the ability to satisfy their strong sense of curiosity. The individuals surveyed said an interest in innovation, technologies and new ideas were all important reasons for them taking the lead and becoming “early adopters” when it came to investing in British businesses through peer-to-business lending.
Not only can investors benefit from returns of up to 10 per cent, but those who may be disillusioned with the traditional banking system benefit from knowing their investment is having a direct, positive impact on helping a British business succeed.
Leader lenders are using the returns from their investments, including crowdlending, to save for their pension, save for their children’s education and to support their children financially in other ways. It is extremely telling that almost half of leader lenders say they use peer-to-business lending to make their money work harder for them.
The report found that 39 per cent of people are investing up to £20,000 in crowdlending a year. The core investment principles remain the same with leader lenders considering a business’s profitability as most important for their investment decision.
That being said, a new breed of investor has undoubtedly emerged. These investors are forward thinking, tired of rock-bottom interest rates and poor returns on traditional savings accounts, and are using their own personal business experience to take control of their portfolio and lend to British businesses. They are investing in the future, rather than for the present and they are now reaping the rewards.
This is starting to have a very real effect on lending in the UK and companies such as GLI Finance, the specialist lender to SMEs, are investing in a variety of platforms with different approaches, but all based on the principle of crowdlending.
According to a recent report from innovation champions NESTA, it is expected that crowdlending will provide £1.6 billion of funding this year, up from £939 million in 2013, helping fund Britain’s future growth directly from investor to borrower.
FundingKnight provides a web platform for crowdlending. The website matches people wanting to earn a better return on their savings with small British businesses seeking to widen their access to funding. More information about FundingKnight can be found at www.fundingknight.com
