“The practice of providing funding to people or organisations by raising many small amounts of money from a large number of people; typically via the internet”
The first peer-to-peer lender, Zopa, launched in 2005 and is still going strong. They use crowdfunding as the method of providing finance to their customers and according to their website they have issued loans in excess of 400million GBP since inception. They are based in London and founded by a management team that was drawn from many of those who previously founded EGG in the UK.
Zopa were the trailblazers. They demonstrated that the crowdfunding business model was not just viable but also successful. With hindsight it now seems only natural that crowdfunding would become an important part of funding to businesses and not just individuals, as obtaining finance from the traditional financial institutions became much harder to obtain following the credit crisis.
Funding Circle launched in 2011 and was the first peer-to-business lender, they specialise in business loans and asset finance and have now loaned in excess of 172 million GBP. Funding Circle’s importance in providing finance to SME businesses has also been acknowledged by the government who recently made the decision to lend 20million GBP through the platform as part of their Business Finance Partnership Scheme (BFP).
Marketinvoice also launched in 2011 and was the first lender to use crowdfunding as a method of raising finance against invoices, known as invoice discounting. It has advanced over 88million in GBP to date. Previously the invoice finance marketplace had been dominated by the banks and larger independent lenders who would often require all company debts to be factored and usually these facilities would be longer term agreements with a minimum of 6 or 12 months contracts. Marketinvoice, along with others such as Platform Black, now offer a flexible, short term/one-off opportunity to raise money against invoices. It is important to note that often the debtors have to ‘blue-chip’ companies or those with excellent credit ratings.
They are now several major players in this arena, offering business loans, asset finance, and invoice finance. Whilst interest rates remain low it offers investors an opportunity to get a return on investment that is not readily available from the more traditional sources of savings and investment. So, on the one hand you have businesses who may be struggling to raise finance from the traditional financial institutions and, on the other, individuals who require a decent rate of return on their investments. The combination of these two needs have played a significant part in the sustained growth of crowdfunding.
Whilst there remains a requirement for funding that cannot be satisfied by the banks and mainstream lenders, alongside a group of individuals who have few options for a comparatively healthy and risk-free return, crowdfunding is here to stay.