Springfords LLP blog

Some news, views and comments about everything and anything, relevant and irreverent.

Cash in the Community

04 April 2014

You can’t get much more mainstream than being reviewed in Which? Which is why Peer-to-Peer lending, money from the many, is the choice of trend setting enterprise, and an interesting potential investment opportunity too.

So how does it work? Well in very simple terms, you lend entrepreneurs their money via an internet based peer to peer lending site – you put the money in to back specific entrepreneurs and they in turn take out loans. Entrepreneurs get successful, and pay the money back, with interest. You take your profit. You spread your risk over dozens and dozens of companies, and even if a few go belly-up, you’re hopefully still quids in. Plus you get to do your bit for making Britain great again. With rates for investors and borrowers that generally leave banks floundering, what’s not to like.

Well, it might look like a good use of your savings, and some companies are as simple to use as a piggy-bank, but there are crucial differences. The bigger the returns or, as non-finance people call them - “temptations” - the bigger the risks that you’ll earn nothing at all. That good old savings safety net, the Financial Services Compensation Scheme, doesn’t cover this sort of investment. Sure, there’s a trade body that has a code of practice, but not all peer-to-peer companies are members. If a lender goes out of business, you’re supposedly covered by insurance, or you can even just go straight to the borrower to settle your account - but then again, if you’ve spread your risk over a hundred companies, that’s a lot of account settling.

OK, the good news. It’s much less intensive than investing on the stock market, and you don’t need to pour over the business pages to get in on the act. If you’re a borrower, rates are lower and ears are more sympathetic than you may be used to. Best of all, for all concerned, as of posting this blog, the entire industry is getting regulated by the Financial Conduct Authority in April - even if it’s a light-touch regulation, that most likely will follow in the footsteps of the trade body, the P2P Finance Association. All companies will be encouraged to behave like the better known players. Along with Which? taking an interest, government regulation is another good milestone on the road to respectability.

So if you’re considering growing your existing business with a peer-to-peer loan, or if you’re thinking about giving your savings a leg-up by giving industry a leg-up too, get in touch with our crowd for some advice before you get into the funding crowd.

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