Peer-to-Business Lending

Transcription

1 A beginner s guide to: Peer-to-Business Lending Register today: rebuildingsociety.com

2 Once upon a time... Savers enjoyed a passive income from interest earnings and businesses had access to credit. However, in the post credit crunch era... & Savers get poor rates of interest So... BANK Businesses can't secure finance through banks Peer-to-business lending brings them together, giving everyone a better deal 2

3 Welcome The web has enabled business transactions to be direct and instant. It has also given birth to low-cost business models and allowed existing businesses to reach a previously unreachable audience. ebay, itunes and easyjet have transformed the way people buy, sell and consume. ebay allows people to buy and sell directly with each other in a marketplace, as has been mankind s way since people traded flint for woolly mammoths, without spending the time and effort in a physical market. itunes used the web for peer-distribution of digital music, revolutionising the record industry that had become complacent with traditional methods of music delivery. easyjet reinvented the air travel industry when it first launched. easyjet allowed customers to buy flights directly, rather than through travel agents, giving birth to the modern budget airline industry, saving consumers time and money in the process. It has also challenged established airlines to compete better on price. Everywhere you look, the web is facilitating small transactions that make our lives easier and cheaper. We believe the time has come for similar change in banking... With your participation, peer-to-business lending will solve two of society's biggest financial problems; restricted access to growth finance for businesses and better returns for lenders. This guide explains how... 3

4 Guide to peer-to-business lending Peer-to-business lending is quickly growing in popularity, but if you re new to it, you ll want to know how to benefit... The concept isn't new. Loans have been made among families and friends for thousands of years and this is the mutual principle that created the building society sector. The difference today is that technology has made the process more efficient and formal, while generating the opportunity to open up vast contact networks. There are 3 types of provider, those who: facilitate loans for consumers (peer-to-peer or P2P) facilitate commercial loans (peer-to-business or P2B) facilitate cash for equity in start-up businesses (crowdfunding) At rebuildingsociety.com, we do P2B loans, nothing else. The sector has grown quickly in the past 12 months due to restricted availability of bank loans and other forms of traditional credit. Consumers and businesses are demanding better value, and P2B finance has opened up an opportunity for savers and investors alike. 4

5 Without banks, we get a better deal Borrowers get finance quickly and at competitive rates, while lenders get higher rates of return This win-win scenario has boosted interest in P2B lending, especially since banks need to maintain high margins to cover costs (such as bonuses) and satisfy shareholders. In a competitive market people will look for more rewarding ways to invest their cash. Like amazon and ebay, P2B lenders operate online with lower overheads, meaning they can compete on tighter margins. Recent government announcements have established P2B lending as a credible sector with a strong future. In December 2012, it was announced that the sector will be regulated by the Financial Conduct Authority (FCA) from April 2014 (which is one half of the new FSA). This development will take the sector into the mainstream of the UK financial services market. Although the P2B market isn't currently regulated, providers in the sector have pushed for regulation and sought to conduct themselves in a manner that reflects standards upheld elsewhere. Albeit new, government recognition shows that P2B lending is here to stay. 5

6 What are the benefits? It's pretty simple. You can make better returns in less time than other savings and investment options. Let's take a simple example. On the Which? website* they offer various potential investment portfolio scenarios, ranging from low to high risk. Depending on the risk level, potential losses investors can expect range from 5% to 40%. If you invested 10k in the medium risk portfolio, Which? forecasts you'd have 11,190 after 3 years, with a potential 25% loss per year. You wouldn't definitely lose anything, but if you did then the losses could be pretty big! If you invested 10k in a peer-to-business platform, at medium risk (let's say 10%), you'd have over 13,310 with potential losses of 3%. It's a hypothetical comparison but it tells a compelling story. Initial investment Expected annual rate of return Value after 3 years Potential annual loses 10, % 11,190 25% ( 2,500) 10,000 10% 13,310 3% ( 300) * Data taken from Which? website, January

7 Where does P2B lending sit against other investment opportunities? We've created a graph to help show you where we feel P2B lending relates to other opportunities. If you put savings and investment options onto a graph plotting risk against return, we think it would probably look something like this: Did you know? According to Which?, if you have a 1957 Beano annual then it has gained 10.8% per year on average. Problem is, although it originally cost just 30p, it's only worth about 90 today. So, you'd need a sizeable collection of them to make a significant amount of money from it! Risk of Losses Emerging Market Shares / Equity HIGH AIM Shares Emerging Market Bonds FTSE Shares Peer-to-Business Equity (Crowdfunding) Commercial Property UK Bonds Property Peer-to-Business Lending (Commercial Loans) LOW Shock & Share ISA Cash ISA Fine Wine Peer-to-Peer Lending (Personal Loan) Gilts Cash LOW HIGH Potential Annual Return We're not investment advisers and so can't advise you on what's best for your personal situation 7

8 How does it work? Loans are created through an auction process whereby borrowers specify the amount they wish to borrow and the length of time they want to spread their repayments over. Lenders then bid amounts of money with an interest rate they want to lend at, which should reflect the risk a lender sees in the business. When the auction period ends (typically 7-35 days) and the requested amount has been pledged, the auction is closed. Borrowers then consider the average interest rate offered and decide whether to accept the loan or not. If the borrower accepts, lenders are repaid on a monthly basis with the interest rate they specified on their bid. Mitigating the risks Some borrowers will fail to repay completely or on time, and money invested through P2B lending is not covered by the Financial Services Compensation scheme. So lenders should take precautions to mitigate the risk of losing money. 8 Did you know? If you re confident that you know your risk appetite, you can use BidPal to automatically bid on your behalf when the right opportunity comes up. Select the amount, rate and grade of business you re prepared to lend to and BidPal does the rest.

9 Scrutinise each business Lend to your risk appetite Prudent lenders will analyse the information provided and ask questions of the borrower to inform their decision. If a loan looks like it carries risk lenders may not bid on it or bid at a high rate. Spread your lending Keeping your loans small and spread across a number of companies will minimise the losses you could incur as a percentage of your overall portfolio. On the other hand, borrowers with a good business profile can end up with better interest rates than they might get through a bank loan, and the finance can be secured much faster. The important thing is to consider what your specific needs are and ask yourself questions about your appetite for risk. It s an age old rule, but only invest what you are prepared to lose. People say... SMEs need access to a range of finance options, including non-bank lending. These new forms of finance are still small in scale today but they should, over time, bring additional choice and greater competition to the lending market. Vince Cable MP, Business Secretary The 50k working capital allowed us to purchase materials and hire contractors, keeping local people in employment and maintaining our reputation as builders of quality. Barry Lawton, MD of Mowbray & Son Ltd (a successful borrower) 9

10 Accessing your money... Loans to individuals or businesses tend to be between 1 and 5 years, so this could be the length of time your money will be repaid over, unless you cash in early. P2B lending providers will all generally offer instant access to any funds that are uncommitted i.e. not loaned out. With committed funds you have the option to sell your investment to other lenders. We ve created a secondary market where lenders can sell on their loan parts (Micro Loans) to other lenders if they want to access their cash faster. Lifestyle interest... Many savers want to get back to having a passive income from their interest payments on savings. Allowing businesses to work your money can net you a decent living, from the interest payments alone. For example, an 8.5% return on 250k capital is 21,250 pa gross before deductions. Each month you will receive repayments into your online account, comprising interest earned and capital repaid. All interest: Monthly transfer of all interest earned Half interest: Monthly transfer of half the interest earned Compounder: Interest earnings may be re-used and loaned out automatically according to your BidPal preferences 10 Fixed amount: Specify an amount to receive each month Manual: Simply use your dashboard to withdraw on request

11 Who s behind rebuildingsociety.com? Online businesses don t always have a public face, but we do. We re physically in an office in Leeds and recognise the confidence that human contact brings to online business. You ll find us at events and we re contactable by phone. How it all started: DANIEL RAJKUMAR owns a successful web agency, Web Translations Ltd. In 2011 he applied for a loan at his bank, which had always supported him, and was turned down despite having a strong credit rating. Other options like overdrafts and factoring were expensive and not right for the business. It s a tale many business owners can relate to. Alongside former Director of Small Business Banking at Yorkshire Bank, GARY LUMBY MBE, Dan founded rebuildingsociety.com in December 2011 and the company launched in September JEREMY WILSON, KENTON ROBBINS and DAVID POWELL joined in early 2012 and JULIAN WELLS came on board as Marketing Director in July. NICK MOULES was appointed Communications Manager in September, while October saw the addition to the board of NIGEL PAYNE who assists Julian with the Introducer Channel. 11

12 Spread the word... Once you've read this useful guide, please pass it on... We have a referral scheme where members who refer others get rewarded. Members will receive a gift voucher for 50 credit when they have referred 3 people who lend at least 100 each.* A further 50 voucher will be issued when 10 people you have referred go on to lend 100 in a completed loan. If you were referred by a friend, please don't forget to mention them when you register! rebuildingsociety.com/trust/refer rebuildingsociety.com 20 Queens Square Leeds LS2 8AF T: E: facebook.com/rebuildings rebuildingsociety.com rebuildingsociety rebuildingsociety-com * rebuildingsociety.com reserves the right to amend or withdraw this offer at anytime. For our full terms and conditions, please visit rebuildingsociety.com/offers