The global crowdlending industry has grown dramatically over the past decade, particularly in the business sector. This method of raising cash, commonly known as peer-to-peer lending, appeals to many small and medium-sized companies who get quick access to cash at favourable rates compared to a traditional bank loan.
The UK largest peer-to-peer lender, Funding Circle, may have been forced to cut its growth targets to 20 per cent last July, due to slowing demand for loans. However, the wider point is that most finance bosses would jump at the chance to lead a business demonstrating double-digit expansion in the current slow-growth global economy.
According to data gathered by LearnBonds.com, the global business peer-to-peer market is forecast to hit $219bn this year by value, growing 21.2% year-on-year. This rising trend is set to continue, with the whole market reaching $290.1bn value by 2023.
The tremendous rise of the global peer-to-peer lending started during the 2008 financial crisis when banks cut back on loans to individuals and small firms, fearing defaults. It set the groundwork for modern peer-to-peer platforms, which removed the banks from the equation and connected lenders with borrowers using sophisticated computer algorithms.
This arrangement potentially gives lenders up to three or four times the rate of return compared to traditional brick-and-mortar savings accounts. However, small investors should be clear that these are loans, not savings products. These unsecured loans are not covered by financial guarantee schemes introduced across Europe and the US following the financial crisis, covering the vast majority of the savings of the typical investor.