By Daniel Lanyon on 11th August 2016
The p2p and marketplace lending industry is driving small business and economic growth, particularly in areas hit hardest since the financial crisis, a new report suggests.
Small businesses are increasingly using p2p and marketplace lending platforms to meet their financial needs, according to a report by the Centre for Business and Economics Research (CEBR).
This is particularly the case in the North East of England where the affects of the 2008 financial crisis and subsequent recession have lingered most strongly compared with the rest of the United Kingdom.
The CBRE’s findings, which were produced in conjunction with leading UK p2p platform Funding Circle, examined loans made through the platform to small businesses since 2010. It says lending by p2p platforms in the UK to small businesses rose by 50 per cent from the beginning of 2015 compared to the beginning of 2016. It claims Funding Circle’s loans have boosted the UK economy by £2.7bn since 2010, supporting 40,000 new jobs and helping small house builders to add 2,200 new homes.
This was in part due to borrowers’ inability to find credit through traditional banking. Additional, nearly three quarters (72 per cent) of borrowers found the experience of obtaining a loan faster than other providers they considered in a survey in June 2016 of 531 borrowers.
Over three fifths (61 per cent) of borrowers saw their revenue increase as a result of taking a loan, while nearly half (47 per cent) reported a rise in profits, the report concludes.
Funding Circle launched six years ago and in that time has leant to more than 15,000 UK businesses who have borrowed over £1.4bn from a wide range of investors including 50,000 people, local and national government, and a range of financial institutions such as pension funds.
According to analysis by AltFi Data Analytics Funding Circle – which only lends to businesses – has seen rapid UK origination growth since 2010 to 2016 although this has somewhat plateau since Q4 of 2015.
Funding Circle UK origination volume since 2010
Source: AltFi Data
The report also highlights that businesses from the North East use non-bank forms of finance much more than traditional high street banks. North East businesses at Funding Circle make up 10 per cent of all lending but only 3 per cent of the UK business population.
The area was one of the worst hit in the aftermath of the financial crisis, not least because the run on the Northern Rock bank – one of the UK’s major casualties of the crisis – and its subsequent nationalisation and fire sale prompted the closure of many branches n in this area with the loss of around 1000 jobs.
This as well as sluggish economic and wage growth not mention the region to be only part of the UK to not have seen house prices return to their pre-financial crisis levels was the impetus for the flagship policy of the previous government – the Northern Powerhouse strategy.
Scott Corfe, director at the Centre for Economics and Business Research said: “Since the financial crisis, UK businesses have increasingly turned to non-bank lending to raise the funds they need to invest, hire new staff and expand to new markets. Companies such as Funding Circle are driving billions of pounds of economic activity and generating tens of thousands of jobs, something that’s set to grow rapidly as the financial landscape continues to evolve.”
Funding Circle co-founder and UK managing director James Meekings said: "Small business isn’t small - it accounts for half of the UK’s GDP and 60 per cent of employment. That’s why we have created the infrastructure where any investor, whether they’re an individual, financial institution or government body, can lend to small businesses.”