The traditional bank loan has long fallen from its pedestal. In today’s digital landscape, the endless reams of paper and hoops people must jump through to secure meagre funding from banking institutions seems archaic. The ISME reported that in Q4 2018 demand for credit was high at 30% and waiting time for approval took on average 8 weeks. This makes it difficult for Irish SMEs to keep their heads above water, let alone grow. The good news is that these persistent problems have resulted in the birth of alternative lending opportunities. In particular, the popularity of peer-to-peer lending (P2P) is only intensifying.
Peer-to-peer lending, also known as crowdfunding, is the process of matching individuals or businesses to lenders via online platforms. This process removes banks from the picture, generates funds fast and doesn’t require any upfront costs!
Peer-to-peer lending in Ireland
For a good while now, Linked Finance and Grid Finance have been the top two P2P business lending platforms in Ireland. In fact, we have worked with Linked Finance for four years, and a number of our clients have successfully raised money with them – as have we. More recently, other speciality P2P lending options have entered the market, such as Spark Crowdfunding which helps SMEs raise equity and Property Bridges for property investors. The world of fintech moves fast, so let’s see what the P2P lending market looks like in 2019.
How does Linked Finance work?
Linked Finance is Ireland’s largest peer-to-peer business lending platform. To date, they have lent over €75 million to more than 1,800 Irish businesses nationwide. As an Irish SME, you can borrow between €5,000 and €300,000, at a fixed rate of interest (between 6% and 17.5%), for a term of up to three years. The loan is repayable in monthly instalments, and you can get set up on their platform in a matter of minutes.
The loan should be to help you grow your business in some way; for example, to improve your working capital, for asset finance, or some form of expansion capital. Your ‘Business Profile’ allows you to attract lenders by answering the following questions:
- Tell us about your business and your plans for the future?
- Why are you safe to lend to?
- How will this loan make a difference to your business?
Once your loan request goes live on the site, bidding will commence. Typically, you have a two-week period to accept the loan offers, but they are generally funded faster than this. Once your loan is fully funded, you can accept the loan and have the funds within 24 hours. You’ll be charged a 3-5% arrangement fee.
How does Grid Finance work?
Grid Finance offers P2P lending along similar lines to LinkedFinance. They describe themselves as a “small business capital platform” for Irish SMEs. They offer term loans up to €150,000, over a maximum of 36 months. Repayments are fixed and made monthly.
They also have a Cash Advance facility – a short-term finance solution for businesses with revenues from credit or debit card sales. You can borrow up to €500,000 over a maximum of 12 months, and repayments are directly linked to your merchant services receipts. Because they collect directly from the merchant services company (AIB, BOI, etc.), they’re financing your working capital and taking the repayments at source. This is a great financing tool for businesses in sectors such as retail or hospitality.
How does Spark Crowdfunding work?
Up until now, crowdfunding in Ireland has been primarily facilitated by Linked Finance and Grid Finance, but both these platforms provide loans – equity doesn’t get a look in. Spark Crowdfunding is a gamechanger in this respect. This P2P crowdfunding platform is most applicable to young companies and start-ups that want to sell 5% – 10% of the company. Right now, Spark Crowdfunding is attracting many Enterprise Ireland clients such as High Potential Start-Up (HPSU) companies looking to scale with further funding.
Campaigns on Spark Crowdfunding typically last for five weeks and there is no fee to list your campaign. If you reach your target, you are then charged a success fee of 6%. The minimum you can raise is €50,000 and there is no maximum. If Spark Crowdfunding has sparked your interest, then head over to our blog, Spark Crowdfunding offers a new way for SMEs to raise equity for all the details.
How does Property Bridges work?
Property Bridges is a new online investment platform that opens up property investing to everyone. With peer-to-peer lending, Property Bridges manages to reduce the risk involved in property investments by removing the need for high upfront costs and, as a result, enables the diversification of the investor’s portfolio.
Property investors can start with as little as €500 and expected returns are 8.5% over 12 months. On the website, each campaign has its own profile which includes details about the loan, the unit, the developer, the security of the investment and the development programme. They finance loans from €300,000 to €3 million across the country and loans cannot exceed 70% of the property’s Open Market Value (OMV). Property Bridges is financed by taking an arrangement fee of 3% – 4% depending on the total loan amount.
How does Flender work?
Flender is another option for peer-to-peer loans that we came across last year. It is fronted by Irish Rugby player Jamie Heaslip, who in October got personally involved by funding 10 Irish businesses over 10 weeks directly through the platform. Before that he had already supported 20 businesses through Flender, so for any rugby fans out there it might just be the cherry on the cake to know Jamie could be an investor in your business!
Flender helps businesses with various financial issues such as launching a new product, business expansion, project financing, working capital and/or marketing. They provide loans of between €15,000 to €150,000 and, if their campaign is a success, borrowers can receive their loan within 24 hours. For investors, rate of returns are high, with today’s live campaigns offering interest rates ranging from 8 – 15.9%.
Find out about our own experience of P2P lending…
In this blog from 2017, P2P lending and other alternatives to bank loans, we discussed our own experience raising funds with Linked Finance. Have a read and if you’re still wondering whether P2P lending is right for you, we’re happy to have a chat to discuss your particular situation.
If you would like to talk to someone about your company’s financial health and whether or not a loan is the right option for you, book a free health-check by calling 01 639 2963.