The economic downturn has caused insecurity in many job sectors. Perhaps one of the most worrisome aspects for new start-ups is the issue of funding. When there is very little funding available, where can SMEs turn? Recent discussions have opened up the topic of peer-to-peer lending as being a viable option.
In 2014’s ‘Action Plan for Jobs’, the Government set out a plan for providing alternatives sources of funding for Small and Medium Enterprises. In this plan, it was suggested that peer-to-peer lending “can be a valuable source of funding to micro and small businesses, either as a complement to traditional bank funding or as an alternative to this funding channel in instances where the application for bank credit has been refused.”
The peer-to-peer lending model is the process of lending money to peers without going through an intermediary such as a bank or building society. These loans are generally made to the individual rather than the company at large. One of Ireland’s best-known peer-to-peer lenders is Linked Finance, which allows lenders to bid on loan requests in order to finance or partially finance the business.
As the economy begins to find its feet again and grow companies of all sizes begin to focus on their investment options and often find that traditional lending models are too slow for their needs. In cases such as this, the peer-to-peer lending model may seem like the ideal option. This period of growing global stability has seen a massive explosion of so-called ‘crowd-funding’ platforms such as Kickstarter. Kickstarter allows for individuals to ‘invest’ in a company or product whilst receiving either a small share or a reward in return. The company or individual in person then effectively sees their product or event funded by peers without having to approach a bank or financial institution.
In the Government’s action plan, they suggest that peer-to-peer lending can compliment or in some cases replace traditional lending models. In the current markets when trust in the larger banks is at somewhat of a low, the tides may be turning from the days when the majority of lending options were bank-led.
In the UK, peer-to-peer lending already makes up a large portion of support for small companies. With the government now planning new methods of support, Irish SMEs might find that in the future peer-to-peer lending may make up a portion if not the majority of their financing plan.
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