Q&A: What is peer-to-business (P2B) lending?

A Q&A with Torsten Hartmann, CEO, Credit Peers

Increased digitisation means new methods of finance are on the rise and peer-to-peer (P2P) lending has been talked about for some time, but what about peer-to-business (P2B) lending? Credit Peers, which recently launched an online P2B lending platform in the UK, explains what this trend is and what it might mean around the world. A lightly edited Q&A with CEO Torsten Hartmann can be found below.

What is the difference between P2P and P2B lending?

Whereas peer-to-peer (P2P) enables people to lend their money to other individuals (often in the form of consumer loans or loans for smaller, private property transactions), peer-to-business (P2B) lending provides individuals with the opportunity to lend to established businesses. At Credit Peers, for example, we only lend to professional real estate investors and developers with a proven track record– something previously only open to banks and large institutions.

Can you explain how it works?

P2B lending works by matching funds from the public to property projects managed by qualified professional real estate investors and developers. To ensure a fair interest rate is established, based on the risk and return profile of a particular loan, we carefully analyse every opportunity through a process called underwriting. Strict lending criteria, rigorous underwriting and due diligence processes form the foundation of any good P2B lender.

Who does this predominantly appeal to?

With many people frustrated by low returns, high service fees and strict penalty charges on their investments, P2B lending appeals to the wider public interested in higher returns on the money they are lending. We recently undertook some research amongst 1,000 consumers which found that 44% of respondents are looking for the rate of return on their investment to be between 5-10% pa. Our offering opens up access to entirely new asset class by giving people the opportunity to lend against property, secured via a legal charge, with fixed rates of up to 10% per annum. What’s more, lenders themselves can decide how active they want to be, by either lending directly towards a specific property or selecting a loan book with pre-defined criteria via the Automatch option.

Why is P2B beginning to take off right now?

The aforementioned frustration with interest rates, combined with low levels of trust in banks, means that people are looking to the alternative finance market to make their money work harder for them. Our research, which found that 59% of consumers trust their banks less than they did a year ago, supports this point. The P2P sector has experienced a real boom as a result of this in the past five years. And giving consumers the opportunity to lend to commercial transactions, traditionally the remit of traditional banks, via P2B lending is the logical next step in democratising consumer lending.

Outside of property where else is alternative lending likely to have a big impact?

Alternative lending is already having a big impact for consumers, through P2P, as well as SMEs and startups looking for funding to scale up their business.

What does all this mean for banks?

As big banks retreated from lending after the crash, P2B and P2P players stepped in to fill a gap. In the process, they shook up the financial sector and grew from side-line disruptors to increasingly mainstream competitors. This means that over the coming years we can expect the majority of traditional banks to re-focus on core businesses again rather than branching out into alternative finance sectors.

Is this taking off faster in some countries than others?

Apart from China, where alternative lending took off rapidly due to lack of regulation, alternative finance and P2B has experienced the fastest growth in the West. Currently, the US is leading the space, with the UK hot on its heels.

Other countries in Europe, like France and Germany, seem to be lagging behind due to the restrictive regulatory regimes in those countries. The UK’s advantage comes from the fact that it appears to have found the right balance of regulation, providing effective protection for consumers without stifling the opportunities alternative finance presents for both individuals and businesses.

What do you think are the wider implications of the rise of P2B lending (short, medium and long-term)?

P2B is an exciting alternative for the public to connect directly with end-lenders, and significantly drives down the cost of financial intermediation. In the future, as in many other sectors, the internet is going to enable P2B providers to continue offering individuals and businesses wider and even more direct access to financing markets. Ultimately, this will mean that alternative lending, including P2B, will become the go to option for consumers who want to make the most of the money they are lending.

Is there anything else you’d like to share?

Rather than being limited to a few investment options within the traditional framework provided by high street banks, the alternative internet based finance sector is providing a huge opportunity to the public. For the first time, you can cut out the middlemen and directly access quality products, underwritten by experts and offered via an accessible online platform. What’s more, you can earn returns that can be higher than those available from other financial products.


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