Banks and P2P Platforms: a British Marriage to Foster SMEs Financing

A recent public consultation launched by UK’s government determined that P2P lending will have increasingly a central role in SMEs finance. In fact, starting later this year, British SMEs will have the chance to be linked up by banks to alternative finance providers - such as P2P lending portals -, when rejected by traditional credit providers.

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The public consultation, named “SME finance: help to match SMEs rejected for finance with alternative lenders”, had the objective to clear whether the abovementioned process should be legislated in order to make it mandatory and to gather opinions on how this should take place in practice. Given the public’s responses, UK’s government has decided that, later this year, it will regulate the process in the Small Business, Enterprise and Employment Bill, along the following guidelines:

• Not all SME credit providers will be required to forward on details of SMEs they reject for finance, as this would cause excessive burdens for smaller SME credit providers, affecting their ability to compete effectively. Therefore the process will be mandatory only for larger credit providers.
  
• SMEs will remain in full control of the process, giving their consent for their information to be shared with alternative lending portals.
  
• The information on SMEs that will be shared by the traditional credit providers with the alternative finance portals will concern only key business information, such as name, amount of finance and type of finance requested among others.
  
• The scope of the mandatory process will not be limited to loans but also to other lending products deemed relevant for SMEs financing.
  
• Information on SMEs will be shared only with alternative finance operators that meet good standard of practice and that suitably protect SMEs that choose to have their information forwarded.
  
  

The main aim of this provision is to address a market failure due to imperfect information and to help more and more SMEs to access the finance they need. In fact, most of the rejected SMEs are viable businesses, which simply do not meet the risk profiles of the largest banks, responsible of 80% of UK’s SMEs financing. Such policy, helping rejected SMEs to connect with alternative sources of debt capital which are proving to be a valid way of raising finance, has also a significant impact on the emerging sector of P2P finance: by being tied so closely to the traditional banking industry, P2P lending is being recognized as a legitimate source of finance which can play an important role in revitalizing the economy. UK’s government is showing, once again, to be a step ahead of many other countries, having acknowledged the great potential of collaborative finance. 

If you’re interesting in setting up your own P2P lending platform, read our case study, visit our technology pages and get in touch with our team.

References
HM Treasury, Department for Business Innovation & Skills (2014). Help to match SMEs 
rejected for finance with alternative lender.


Image credit to: Doug88888 http://bit.ly/1xtts3C

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About the author - Irene Tordera


Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.

During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.

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