Peer to Peer Lending

There may be trouble ahead. I take a keen interest in the P2P sector having worked closely with two of the platforms.

I use assorted research tools including those that enable me to search businesses by secured lender. The results from a few P2P platforms are troubling given the apparent deterioration of their books with some of their borrowers looking to be in deep financial trouble.

Almost by definition those businesses that borrow over P2P platforms will not be the strongest financially. They will be paying higher rates than available via conventional sources, not only to give those that are lending a good return but also to feed the platform itself, and their costs are not insignificant.

If borrowers, in numbers, start to fall into some kind of insolvency process or disappear completely then the sector will struggle to survive and a lot of investors will lose capital.

As a broker, talking to businesses looking to borrow, P2P borrowing would be a long way down the recommendation list. Were anyone to ask about the merits of lending across a platform, then extreme caution needs to be exercised. Funds are not covered by the Financial Services Compensation Scheme so never has the phrase ‘Capital at Risk’ been more appropriate.

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