Peer-to-peer lending: the way of the future for Irish small business?
There's a lot of chatter these days about providing alternative sources of finance to SMEs, something to which the Government is committed in its 2014 'Action Plan for Jobs'.
The Government says something called peer-to-peer lending "can be a valuable source of funding to micro and small businesses, either as a complement to traditional bank funding or as an alternative to this funding channel in instances where the application for bank credit has been refused."
Peter O'Mahony, chief executive of Linked Finance, outlines how peer-to-peer finance works: "Your local cafe decides they want to borrow €25,000 to build a new kitchen. They would come along to Linked Finance, we would do all the credit-checking and vetting of the business, and if we think they're creditworthy we'd post them up on our website."
"We basically give background on the business and say they're looking for the money to do up their kitchen, then at the moment we have over 7,000 members of the public who basically bid to be part of that loan."
SMEs have now raised over €5m through Linked Finance, and the firm hopes to see €30m loaned to small businesses through its platform next year.
"With the economy in growth mode again companies of all sizes are focusing again on their capital investment, they need to move rapidly to avail of opportunities in their markets and traditional lending is simply too slow," Mr O'Mahony said.
"Banks, while still a traditional source of business lending, cannot react with the speed of turnaround that companies need in the current marketplace. Linked Finance bridges that gap and brings the added advantage of creating a community of active investors in Ireland's recovery."
Mr O' Mahony says peer-to-peer can be more than complementary or an alternative, the term used in the 'Action Plan for Jobs'.
He points to the UK government investing £60m through alternative financer Funding Circle to support lending to SMEs.
"Too much business lending is concentrated in the big banks and, if we're to have a properly functioning business lending market, they need to be challenged by new banks, peer-to-peer lenders and other alternative providers," UK Business Secretary Vince Cable said last May.
And in July, the Oireachtas Joint Committee on Jobs, Enterprise and Innovation recommended that the UK scheme should be replicated here.
"Obviously the Government have just announced the launch of the Strategic Banking Corporation and that would seem like a very logical vehicle for the Government to use to channel funds to peer-to-peer financers," says Derek Butler, chief executive of Grid Finance, which launched a peer-to-peer product last month.
"I think [peer-to-peer] is going to be a part of every business's funding mix. The big thing for us is that we can give quick decisions."