Tuesday 27 September 2016

You can beat the banks at their own game

Published 28/06/2015 | 02:30

Another flower that has evolved from the ‘sharing economy’ is peer-to-peer lending
Another flower that has evolved from the ‘sharing economy’ is peer-to-peer lending

Another flower that has evolved from the 'sharing economy' is peer-to-peer lending. This is where you can use an online platform like Linked Finance or Grid Finance to lend directly to small businesses, offering them a cheaper and quicker alternative to banks.

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"That's the beauty of this model; it allows people to share their money directly with businesses and without having to put it into a bank, so our business is very much about the sharing economy," said Derek Butler, chief executive of Grid Finance.

With Grid Finance you can lend as little as €5 to half the value of the loan being sought (each loan must be backed by at least two lenders).

Linked Finance's system operates like an auction where you can make a bid of between €50 and €2,000 on a single loan request from a borrower. So if a company is looking to borrow €5,000, you can make a bid to lend €200 of that amount at an interest rate that you think is appropriate. It's up to the borrower to accept or reject.

According to Mr Butler, interest rates agreed by lenders and borrowers on Grid Finance typically range from between 6pc and 12pc, with the average rate currently at 7.91pc. You can charge between 5pc and 15pc through Linked Finance.

"The interest rate is one thing, but really the vast majority of businesses that use the Grid can actually access bank finance. But they use the Grid because its quicker, easier and its a better experience all-round," he said.

Linked Finance charges lenders 1.2pc of the value of their outstanding loans every month.

Grid Finance currently charges no fees for lenders, but Mr Butler says it plans to deduct 1.25pc rate of interest on top of the rate decided by the lender. So if you charge a rate of, say, 10pc, the net return on the loan for you would be 8.75pc.

One sticking point for the cautious is that the sector is currently not regulated, but the Central Bank says it is monitoring regulatory developments at an EU level.

Mr Butler says that his firm is already "regulation-ready" by adopting the standards of the UK, which he believes has the most robust regime in the EU.

Sunday Indo Business

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