Market place borrowing: striking a balance between institutional and retail investment

20th August 2015

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Since our last briefing in June 2014, a lot has changed not just with UK Bond Network, but with peer-to-peer lending and alternative finance as a whole. In such a short period of time, this dynamic industry has provided over £2bn of funding to SMEs and has moved towards shedding its ‘alternative’ name to become a genuine part of the ecosystem for small- and medium-sized businesses who are seeking finance.

Marketplace lending and borrowing

Peer-to-peer lending was borne from necessity: an antiquated, slow and inflexible banking system coupled with a harsh economic downturn meant that savers were struggling for interest and businesses were hindered by a tighter supply of credit. Decentralising this cornerstone of the financial services industry has democratised, simplified and reenergised the business funding process, fuelling faster, more efficient technology and increasing competition.

A large part of the exponential growth seen in the peer-to-peer sector can be attributed to the involvement of institutional lenders in peer-to-peer loans; a subject which has garnered plenty of debate. Whether peer-to-peer lending can truly be considered peer-to-peer in light of this is a key question, as some platforms who welcome this institutional money do so at the detriment of their original core audience: retail investors.

Despite this significant move away from peer-to-peer’s founding principles, the change does have significant benefits for companies seeking finance. In short, considerably more capital is now finding its way to companies as the platforms themselves can achieve greater scale - a huge positive.

A diverse range of options

The flexibility of some market participants, compared to traditional bank finance, has also now opened debt finance as an avenue to funding that has not been seen as accessible to quoted companies in recent times. UK Bond Network can deliver asset-based lending, finance for leveraged buyouts, remove equity credit lines to deliver permanent capital, and offer working/growth capital for revenue-generative companies.  

Companies raising debt finance through UK Bond Network benefit from certainty of funding, delivered through our underwriting relationships with institutional investors. Then, the opportunity to invest is opened up to our pool of high net worth and sophisticated investors through an auction process, where participants bid competitively to lend to the borrower, offering the potential to drive down the headline interest rate.

This important point takes away all uncertainty traditionally associated with a fundraise, and as an advisor recently commented to us, means that it doesn’t matter if the FTSE is up 50 points, or down 150 – sentiment plays little role, and companies know they will get their money in a timely fashion.

A level playing field has been at the core of our offering since inception, and fostering competition between investors ultimately bears the best results for borrowers. Our flexible and consultative approach to structuring debt means that we can deliver £500k to £4m of finance on terms that suit the goals of your business, while maximising ease of repayment through appropriate structuring – something in which the interests of all parties are aligned.

This briefing was prepared by Ben Cohen of UK Bond Network. For more information, please contact Ben Cohen.

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