While peer-to-peer lending [also known as P2PL] has taken off in the USA, China and UK, it’s relatively new to the broader Australian market. P2PL basically involves lending usually unsecured money without going through a traditional financial institution.
Unpack the definition of Peer to Peer lending in this video:
“The big banks used to be the only people who offered unsecured lending,” says Grow Capital Australia Managing Director Gus Gilkeson. “Now you have private funds and a number of fund-style lenders out there who are willing to lend to you and I on an unsecured basis”.
Gilkeson says the reason there is more interest in P2PL now relates to new technology that allows you to analyse financial data quickly and benchmark a business so lenders can be confident that whatever business they fund is going to be able to service the loan.
“Grow Capital is facilitating a lot more peer-to-peer lending than we have in the past”, says Gilkeson. “For people looking for loans we first discuss what they are wanting to do. We then use a number of business benchmarking tools to analyse their financial data and projections. So before they start talking to lenders we can establish why they would be an attractive candidate for funders. For businesses to be borrowing, they need to know very clearly that they can pay the loan back. We help them by creating custom benchmarking reports.”
“We then put together a full credit submission paper on the clients behalf. This allows incoming lenders to have a clear financial overview of what the business does in its market, what the specific business’ advantages are and why.”
Gilkeson has found that P2PL has been particularly useful for family-owned unlisted companies because the loans can often be organized faster and sometimes at a lower rate than traditional financial institutions. Lenders can also benefit from returns that are higher than they would get from a bank.