My last post broached the subject of small business loans and the role that credit checks and scoring systems play when it comes to loans for business. It was great to receive some comments in reply and one of them – pasted below – really got me thinking…
“Peer to business lending is based on everyday savers lending to everyday businesses” – This is a romantic notion. The reality is that a) Saver/Lenders do it to get a better rate of return and b) Getting a P2P loan requires that you pass some of the most stringent credit check criteria out there. Credit scores are there for a reason and while the system may not be perfect and could benefit from refinement, implementing something with even a small element of subjectivity or human interaction would be logistically very difficult and make it impossible to be consistent I imagine. I’m afraid I think what we have may be as good as it gets for now.
So – peer to business lending – Is it part of a wave of new finance that’s genuinely trying to shake up business funding in the UK… or is it really nothing more than a romantic notion?
It’s a valid question to ask.
After all, it’s easy for new entrants to criticise the status quo. It’s tempting to get carried away in the quest to be different…
But actually, when it comes to the crunch, I really do think that peer to business lending is about more than financial performance, more than simple greed.
Of course, the figures have to stack up for both sides. Savers do – quite rightly – want a better return on their hard earned cash and borrowers – understandably – want to get the business funding they need on the best terms possible.
But beyond that, all of us want to feel like we’re doing the right thing.
When faced with the choice of investing in unknown stocks and shares in unknown locations vs. the opportunity to lend to hand-picked British businesses, many people would opt for the latter.
There is a huge movement to support local communities, there’s a huge movement to invest in local trade. That’s not romantic, that’s a reality.
If the global financial crisis has taught us anything, it’s that we need greater visibility about what our money is funding and how that investment is performing. There is a growing band of people who want to invest in tangible businesses they can touch and feel… and through peer to business lending we hope to be able to help them invest locally.
History shows that greed is rarely the path to happiness. Neither is a willingness to accept that what we have now is as “good as it gets”.
People want to protect their savings and feel like they are doing the right thing. People want to help the British economy recover. People want to be able to be an equal partner in setting the terms on which they borrow and people want to control their finances.
Those notions aren’t romantic and they aren’t unrealistic. They’re evidenced by campaigns such as Move Your Money, they’re demonstrated by the willingness of customers to support their local high street or pay more for locally sourced, organic produce and they will become the reality with the growth of peer to business lending.