Peer-2-Peer: A “win/win” for investors and local communities

Since 2005, lenders have lent more than £10 billion through P2P platforms helping consumers and business access finance to help achieve their goals. Giles Cross, CMO at FOLK2FOLK explains why…

It’s over 12 years since P2P lending first appeared on the investment landscape as a bit part player and, since then, the sector has burst into the mainstream as investors eagerly explore new alternative ways to retain value, boost income and beat inflation. And as well as gaining popularity and traction with the consumer, it’s also matured and gone “legit”, gaining FCA regulation, government backing and becoming an ISA option through the development of the Innovative Finance ISA.

Since 2005, lenders have lent more than £10 billion through P2P platforms helping consumers and business access finance to help achieve their goals.

P2P lending has become a popular investment alternative to the low returns currently offered by cash and bonds and for those seeking to avoid the uncertain volatility of the stock market. According to the Daily Telegraph, over 50s are now just as likely to invest in Peer-2-Peer as they are to dabble with stocks and shares. Peer-2-Peer, with its simple, transparent and easy to understand formula has become trusted by consumers.

As demand for business finance continues to grow, it is somewhat ironic that the traditional players conversely reduce their appetite for lending to lend to small, rural and local businesses.

Alternative finance providers like Folk2Folk are therefore seeking to fill this widening gap by enabling individual investors to lend directly to those businesses requiring finance and earn inflation beating income in return; And as demand increase, so do the invest/opportunities to invest and get involved.

Latest data compiled by ALTFI, shows that returns, on average, have been around 5%, with default rates remaining low (although this does vary by platform). As most Peer-2-Peer platforms do not charge fees to Lenders, with income paid direct into a Lenders’ platform account or to their bank, they offer a transparent, reliable and predictable alternative income to investors.

But what of risk?

In FOLK2FOLK’s case, all loans are backed by and secured against the tangible assets of property or land. The taking of high value security on the loan reduces the risk of loss to investors as the asset can be sold to recover potential losses and interest owed in the case of a default; and, for the lender, this makes the loan “real” and tangible as they may be familiar with the property or business in their local area, be that a hotel, golf course, farm, restaurant, swimming pool etc.

And FOLK2FOLK Lenders do more than simply assist in the financing of local business. In becoming a FOLK2FOLK Lender they are joining a growing Local Lending Movement that is helping to create and sustain financially and socially successful communities across the, allowing the free movement of capital which drives economic growth, job creation, redevelopment and diversification. They participate; they engage; and they make a huge impact.

People new to peer-to-peer lending are encouraged to do their research on the types of lending they feel comfortable with, as it is Lenders themselves that make the final decision of to whom they will offer finance. Each platform and type of lending is different so it is crucial that investors choose a platform and invest type that suits them best.

There are now tax free benefits of using Peer-2-Peer lending as part of your investment strategy as the sector now has its own ISA category, the Innovative Finance ISA. This gives investors an opportunity to earn tax free interest on their loans. P2P lending is also part of the Personal Savings Allowance and can be includes in SIPPs as well.

Peer-2-Peer lending can be both financially and socially rewarding. It not only provides attractive returns but with FOLK2FOLK, investors can really make a difference to their local area and communities across the UK by providing the capital business owners require to “crack on” and grow.

P2P lending is not risk free and is not protected by the Financial Services Compensation Scheme so when lending your capital is at risk. Therefore it’s important to understand the risks involved at a loan level and platform level. Unlike Folk2Folk, not all platforms are regulated by the FCA or members of the P2P finance Association.