Many established global traders usually have a process in place to cover their costs and potential liabilities that works. They may use Letters of Credit, deal cross border with large international banks or use invoice discounting facilities. However, risk awareness, compliance and product range has become more complex and some companies are not happy with the pricing of risk, amount of regulation or speed at which they can conduct their transactions.
What is Peer to Peer lending?
Peer to Peer lending is the new elephant in the room that many traditional traders don’t want to talk about. Increasingly, however, many are wondering whether it could be a viable option.
There are many invoice discounting market places that provide competitive rates when compared to banks. This is because people bid on the prices of the invoice and are willing to take a percentage of the amount offered. The downside of this is that many people do not want their invoices made public and time limits can vary in relation to how long it will take to get funded. Also, there is a lack of clarity when compared to an existing financing relationship.
For those that have a revolving credit facility from their bank, or who take out short-term loans at different points in their business cycle, this can also be done online. Many online financiers offer smaller facilities, especially those between £3,000 to £100,000, and rates and time limits will differ. However, for the most part, 30, 60 or 90 day facilities are most popular. Credit checks are automated and quick, funds are disbursed with ease and once set up; business is easy to do – usually via an online portal.
There are risks with peer to peer formats of lending, such as not having a guarantee scheme which is directed by the government or having too many lenders providing inconsistency with values that are being funded and then uncertainty about how many funders that will commit to a invoice or specific transaction. On average, we see a lot of people exploring peer to peer lending and it is worth assessing this option and comparing it to the current funding terms being offering in the market.