The rise of peer-to-peer lending, and the apparent likelihood that P2P lenders may begin working with the high street banks, has been highlighted as evidence of the extent to which businesses in the UK have lost their faith in the banks as sources of funding.
Stuart Law, chief executive officer of the fast-growing P2P lender Assetz Capital, made the suggestion in an interview with the industry website Crowdfund Insider.
He was commenting not on his own company, but on suggestions that fellow P2P lender Funding Circle may begin to collaborate with some of the big banks.
“Why would a bank lend through a third party rather than lending directly through its own channels?” asked Mr Law.
“To me, it suggests that many businesses have lost faith in banks to the extent that banks are no longer able to attract business borrowers.”
By acting in collaboration with P2P lenders, Mr Law suggested that the banks may be able to find a different route to access these “lost customers”.
Despite its P2P structure, Assetz Capital in particular is designed to minimise risk for those providing the funds.
Crowdfund Insider reports that it takes “tangible security” on each loan, allowing it to recover lost funds on defaulted loans, for example through first charges on business property.
This has led to zero defaults since the March 2013 launch date – by the end of the year, the company had lent some £10 million, and expects to lend £100 million or more over the course of 2014.
Overall however, some losses are expected – the gross default rate is predicted to be around 1.5%, with roughly half of that recovered through loan security.
So far, Assetz Capital has returned a gross yield to its investors of some 12.7%, proving the potential for positive earnings from P2P lending, alongside the possible benefits for borrowing businesses whose faith in the banks has been shaken.