Can crowdlending regain trust in business finance?

trust

2012 ended with a flurry of news about crowdlending and peer to peer lending and it seems that January has continued the trend with plenty more articles cropping up to discuss how alternative finance can help restore faith in a beleagured financial system and  provide the business funding that our economy needs to grow.

Since the whole concept of peer to peer is about sharing, we thought it would be good to share one of our favourites, a post from David Pitcher published over at SunZu (previously ecademy).  David’s post asks whether peer to peer lending can restore trust in finance for business and has sparked some interesting comments.

Recently I saw a T-shirt on which was printed:

‘Give a man a gun and he can rob a bank.
Give a man a bank and he can rob the world.’

Some businesses are still feeling betrayed by banks because they have not been lent the finance they need to develop or continue trading.
It seems to me that a key issue about banks is about their trustworthiness . After all, a run on a bank is only the loss of trust that the bank can keep our deposits safe even if they are actually safe.

Trust

Trust is the basis of all business and personal dealings. No amount of legislation can actually replace that personal and corporate trustworthiness, established, tested and proved over many years. Sadly and foolishly some unscrupulous businessmen including some bankers have done the unthinkable – for personal gain they have ‘at a stroke’ betrayed and squandered that ancient trust.
The response from a friend who is a retired senior banker was one of anger and disbelief and he simply asks ‘Whatever happened to ‘my word is my bond’?’

To read the rest of David’s article visit the SunZu website

Crowdlending helps North West business grow

scanning machine

Whilst the UK digests the news that Britain may be heading for a triple-dip recession, Secure Archive Solutions are proving that it doesn’t need to be all doom and gloom for the UK’s small businesses. The business is going from strength to strength proving viable businesses throughout the UK need investment for growth.

Mick Collins, Founder of Secure Archive Solutions said,

“It’s great that small businesses like us can find new ways to get the funding we need. We’ve got big plans for the future and know we can grow profitably with the right small business finance in place.  FundingKnight provide a fast, flexible service. Our loan was live on their website within a week and is already nearly 40% funded.”

Secure Archive Solutions credits expansion into new areas such as scanning as being a key source of growth, and are backed by a strategic vision to find innovative ways to help the company grow profitably and sustainably.

Secured Archive Solutions launched a new round of funding on www.fundingknight.com at the end of last week and the loan is already 40% funded, demonstrating a healthy interest from investors.

The loan still has nine days left to run so if you’d like to get involved simply add funds to your FundingKnight account and go to Find a Loan to place a bid.  If you’ve not yet signed up with FundingKnight head over to register as a lender.  It’s entirely free to join, there are no fees for taking part in a loan and you can start lending with an investment of £25 or more.

New crowdlending opportunity: Secure Archive Solutions Ltd.

SAS Ltd logoA new investment opportunity is now live on our website for all registered lenders to bid on.  If you’re already registered with FundingKnight you can log straight into the website to read all about the loan opportunity, review the financial information and, if you wish, place a bid.  If you’re new to crowdlending or not yet signed up with FundingKnight simply go to www.fundingknight.com to sign up as a lender.  You can start investing with £25 and we charge no fees for taking part in a loan.Whilst it’s early for us to predict rate which potential lenders will achieve, our first auction-based loan provided lenders on average with a rate of 9.98% p.a.

New borrower: Secure Archive Solutions Limited

Amount: £50,000

Period: 2 years

Auction duration: 14 days

Based in Altrincham, Cheshire, Secure Archive Systems provides document storage and archive facilities, offering bespoke solutions in the document management service sector, with a turnover of over £400,000 in the last financial year.It needs the funds to extend its storage capability, installing racking in its newly acquired warehouse, building an extension to its vault, and upgrading its IT.

Once registered, you can find more details by logging on to www.fundingknight.com and choosing Find a Loan.

 

Crowdfunding accountants: Invest in abacus Franchising

abacus franchising logo

New loans are now live on the FundingKnight website, offering the chance to start investing in abacus Franchising.

Abacus is a national network of qualified accountants, supporting small businesses in all aspects of accountancy and taxation.

There are two separate auctions providing a chance to invest in British business:

1 – year loan of £20,000

3 – year loan of £30,000

Each loan will be crowdfunded, using the FundingKnight investment community to attract investors.

You can start investing with as little as £25 and peer to peer lending is fee free with FundingKnight.

To lend to British business you need to register as a FundingKnight investor.  Once that’s done, you simply log onto www.fundingknight.com and choose Find a Loan to start investing.

You decide what to invest in, you decide the rate that you want to bid and you have the chance to access your cash whenever you need it by selling or all or part of your investment to a new lender via the FundingKnight loan exchange.

Read about the abacus loans below, or for full financial analysis and information log onto the FundingKnight website.

Business seeking funding: abacus Franchising Company Limited

Loan 1:

Amount: £20,000

Period:  1 year, repayable in 12 installments

Loan 2:

Amount: £30,000

Period:  3 years, with a 3 month repayment holiday

Auction duration:

Fast track auction of up to 14 days, to close when both loans have been filled at the reserve interest rate.

Reason for loan:

Expansion, following new contract awarded by Scania GB.

Business background:

Incorporated in 2004, abacus has developed a national network of qualified accountants who support SME businesses with all aspects of accountancy, taxation and administration functions.  The network has over 3,000 clients. Its collective fee income would make it one of the top 100 accountancy firms in the UK. Abacus is the only national accountancy franchise for qualified accountants approved by the British Franchise Association.

The loan is to provide finance to support the expansion of the business following an award of a new alliance with Scania GB to provide services to its customers.

Find out more, or search for new loan opportunities by registering as an investor with FundingKnight.

The State of Innovation in UK Insurance

Bought by Many

Today, we’re delighted to welcome Steven Mendel, Co-Founder & CEO of Bought By Many to the FundingKnight blog.  Here’s his guest post taking a look at the state of innovation within the UK insurance industry.

You might think the competitive insurance industry would embrace innovative insurance products such as peer to peer insurance to demonstrate its commitment to financial innovation.  However, evidence suggests that the sector is resting on its laurels.  It has mainly demonstrated a slow response to the evolving needs of customers, despite technology offering new ways to service customers and access data to provide more sophisticated and personalised premium options.  Marketing on the basis of price sensitivity is no longer enough.  Consumers are increasingly looking for excellent customer service and convenience.

PWC’s recent Future of Insurance report supports this view.  Customers are demanding ease of interaction through technology and greater flexibility from the insurance sector.  It suggests that data trawling of social networking sites can give the industry new knowledge on the behaviour, desires and buying power of existing and potential customers.  In fact, the report even goes so far as to say that sensor technology could help to evaluate the health of policyholders and identify problems earlier, leading to reduced liabilities and lower premiums.  So where is the big debate on these potential developments within the insurance industry?

As insurance companies are essentially in the business of using data to calculate quotes, it is easy to conclude that social networks would offer a tantalising opportunity for them to drive a personalised marketing strategy.  Many other businesses have already harnessed the power of Facebook.  The question is: why has the insurance industry largely ignored its potential?  The travel industry has already embraced booking apps, online day itinerary services and social media integration to encourage consumer demand in an economically challenging market.

Friendsurance, a small company in Germany, is innovating in the area of shared insurance, where small policies can be shared among a circle of friends, thus reducing the cost.  Granted, Germans are renowned for the level of insurance that they have but this represents a novel way of groups of, say, students or neighbours, getting better value on parts of their insurance.  However, there is no sign of the insurance industry embracing this idea in a cash poor consumer market or taking advantage of shared networks across the internet. This is where Bought By Many comes in, through linking collaborative consumption with social media, to try and update the insurance world – which should benefit insurers, through the creation of grouped risk, and consumers, with better value offerings. Their intention is to make insurance social, no small task.

Another route for innovating in the insurance world is through smart phones.  Given their pace of evolution in every day working lives, it is inevitable that customers will want to start the claims process for scenarios such as car accidents or minor home contents damage on their mobile phones.  There is some sign of a shift in this direction, although not across the board.  It looks as if the US insurance industry is pushing the boundaries of technology more, with the likes of State Farm’s Pocket Agent and American Family Insurance’s My AmFam.

In the UK, Aviva offers an app for the iPhone that allows car insurance customers to start their claim on their phones but another huge player, Axa, currently only gives customers one option – an 0844 phone number.  More insurance companies need to adapt apps such as MotorMate, devised by Confused.com to deliver data on a driver’s behaviour, for the purposes of offering personalised car insurance quotes.  Given that the newspaper and music industries – not exactly known for their embrace of the digital era – have transformed the way they deliver their products to the smart phone audience, the insurance industry seems to be lagging behind.

Price comparison websites have brought the issue of transparency to the fore in the insurance sector but companies themselves are coy when it comes to comparing their prices with competitors.  Perhaps some of the larger insurers should learn from a feature on the Esurance website, another US based company, that provides a quote and compares it against rates from other insurers.

The industry’s constant focus on physical damage and loss situations is frequently criticised.  As the commercial world becomes increasingly dependent upon the value of information and knowledge, it is time for the insurance sector to adapt and provide new emphasis on financial and information risk management.  New ways of thinking are needed if the insurance industry is to be able to call itself innovative.

If the insurance industry fails to adapt, the development of new technology could open up opportunities for small, niche companies to offer products to consumers.  Think about how the publishing world is being cracked open by self-published authors who need little more than their talent and access to Amazon’s Kindle store to build their name and income.  The same thing could happen, albeit it to a lesser extent, in the insurance industry.  The industry is famous for its risk-averse nature so, while it has become more efficient within its existing markets, it has failed to develop new ways of doing business.

Although the prospects appeared to be mixed, I am optimistic for the future of the industry.  A survey by Gartner in late 2010 on IT development in the global insurance industry revealed that investment is low but that senior managers are expecting huge changes in IT over the next five years to create that all-important competitive edge.  There is a sense, however, that insurance companies have been driven into these changes rather than because of a desire to offer a different experience to their customers.  The time has come for the sector to look at the travel and leisure industries, then, to see what their future could look like.

Steven Mendel is Co-Founder & CEO of Bought By Many, a start-up enabling communities to club together to buy insurance. Twitter: @stevenmendel

Peer lending and Crowdfunding praised by Bank of England’s Andy Haldane

the Bank of England

Perhaps an industry knows it is on to something when someone who confesses to being “congenitally pessimistic about most things in life” admits to being really optimistic about its future… Certainly, the latest comments from Andy Haldane, director of financial stability at the Bank of England will be music to the ears of peer to peer lenders in the UK.

Speaking to the Independent in an interview published today, Andy Haldane told Margareta Pagano of his bright hopes for the future of crowd lending:

“It’s a time of opportunity knocking for finance.  Hopefully, the growth of peer-to-peer lenders, such as Zopa, Funding Circle and Thin Cats, and those involved in crowd-funding, such as Crowdcube, will help solve the problems we have in the UK with lending for SMEs.”

Haldane went on to explain how he thinks online technology has “the potential to transform finance and fill the gap left behind by the big high street banks which have little appetite for taking on risk in lending to SMEs.”

You can read the full article “Bank supremo: Peer-to-peer lending is a good reason to be cheerful” in the Independent, or start peer to peer lending yourself by registering as a lender at FundingKnight and taking part in one of our live peer to peer loan auctions.

 

Photo

P2P online auctions… how rational are you?

waiting for the hammer to fall

If you haven’t already visited http://www.p2pmoney.co.uk you should put it top of you P2P to-do list.  It’s an independent website dedicated to comparing UK peer to peer lenders and keeping avid fans happy with a pretty steady torrent of news and updates.

I’ve been lucky enough to get the opportunity to contribute a few guest blogs over on the P2pmoney blog and this week’s is P2P Online Auctions: Waiting for the hammer to fall.

It’s a short piece about how irrational people can potentially get when overcome with the frenzy of auctions – and designed to coincide with our first loan auction on the FundingKnight P2P Loan platform.

If you’re interested in how auctions can mess with your minds head over for a look.

Peer to peer loan descriptions: What’s in a name?

analysis

I’m an avid reader of the Lend Academy blog by Peter Renton, in fact, I recently reviewed his book about Lending Club, The Lending Club Story on the Funding Knight blog.

One of the reasons I love Lend Academy is the amount of information and analysis on offer for P2P enthusiasts.  Yes, it’s focused on the US market but it never fails to get me thinking…

This week, it’s the a guest post called Loan Descriptions – Can They Be Helpful When Choosing Loans? that has caught my eye.  Written by Sam Kramer, a financial sector old-timer and keen P2P investor (You can find him on Twitter @P2P_CT), the post delves into historical data to investigate whether the loan description that introduces a P2P loan is at all predictive of its eventual repayment rate i.e. can you predict which loans will default simply by reading their name?

Well, I won’t let all of the results out of the bag, you should head over to Lend Academy to read the full post for that (and subscribe since this is just the opener in a 2 -part guest slot) but here’s a taster to whet your appetite.

chart tracking default rate by loan description length

Default rate by loan description length

Top level analysis: Very short loan descriptions (between 1 and 10 characters) have a reasonably high default rate.  (Note, interestingly, no-description loans have a lower-than-average default rate, as do short loan descriptions of 11 – 350 characters).

The post goes on to look at the impact of longer descriptions as well as drawing attention the the impact that recency of loans will have – if no-description loans are a relatively new thing, then logic says they’ll have a lower default rate since less of them will have grown to maturity.

This latter point is relevant for virtually every piece of analysis you’ll see about peer to peer lending as the whole industry is so young.  Finding a way to compare default rates of very young ‘unseasoned’ loan books with the much more mature lending portfolios of mainstream banks could throw up some interesting analysis… any volunteers?

P2P to be regulated. Next stop, a change to the regulations on the treatment of peer to peer losses.

letter for MPs

Last week’s news that peer to peer lending is about to be regulated by the FCA was met with pretty unanimous support from the industry, with both borrowers and lenders and the peer to peer lending platform owners themselves all agreeing that regulating peer to business lending is likely to boost rather than stifle peer to peer finance in the UK.

So that’s one battle won – or at least the first round, no doubt there is a whole host of further debate to come regarding exactly what shape the new regulation takes…

In the meantime, however, there’s an existing regulation that peer to peer lenders want changed – and that’s the treatment of losses.

Whereas banks and other financial institutions are able to off-set bad debt against interest earner, peer to peer lenders are not under current HMRC rules.

This is not only unfair but fundamentally compounds the impact of any peer to peer losses.   P2Pmoney.co.uk has helpfully crafted a suggested letter that anyone who agrees that the current state of affairs is wrong can cut and paste and send on to their local MP.

You can find the letter here on the www.p2pmoney.co.uk website.

Rothschild backs peer to peer lending as new meets old

old leaf on new grass

Following Friday’s news that peer to peer lending, including peer to business lending  is set to be regulated by the FCA (the regulator about to replace the FSA), the industry has received a further boost with news that RIT Capital Partners, Lord Rothschild’s London-listed investment trust has invested in Zopa, the UK’s first peer to peer lender who started the alternative finance wheels in motion back in 2005.

It’s a move which will inevitably prompt a whole host of “old meets new” clichés as one of the most famous bastion’s of banking joins forces with a disruptive player on the alternative finance circuit.

Speaking to the Financial Times, Lord Rothschild said,

“We are witnessing the growth of the non-banking lending market.  Following the 2008 crisis many of the banks remain under capitalised.  In these circumstances alternative forms of credit will be developed on a significant scale.  This is happening.”

UK peer to peer lending enthusiasts will no doubt watch to see whether the involvement of such an internationally renowned name does for Zopa what the arrival of John Mack did for Lending Club.

Lending Club have now processed over $1bn of loans in the US and their success has often be credited, in part, to the fact that they managed to engage the support of a recognised industry chief who could bring Lending Club the gravitas it needed to go mainstream.

Although Lord Rothschild left his family bank three decades ago, his name remains synonymous with what was once the globe’s most impressive banking group.  The decision of RIT Capital Partners to invest in Zopa will surely be seen as a rubberstamp for an industry which is rapidly growing from a small stream of niche financing into a genuine alternative to mainstream banking.