Peer-to-peer (P2P) lending has become big business in the UK and US, with approximately AU$2.9 billion and AU$10.5 billion respectively having been lent through online platforms in those markets. If those numbers and the recent high-profile investments into Australian P2P platforms (by the likes of Packer, Stokes, Murdoch and Westpac) are anything to go by, P2P is looking like a contender to shake-up the personal financing environment.
It is the recent introduction in Australia of peer-to-business (P2B) lending platform, ThinCats, however that has grabbed our attention. The P2B platform allows SMEs to apply for loan amounts of up to AU$2 million which are subsequently “bid” upon by prospective lender investors in a reverse-auction (that is, an auction on the sell- side, rather than the traditional buy-side). Lender investors are able to finance a fraction of the loan (in AU$1,000 increments) depending on the level of risk the investor is prepared to bear (in light of the borrower’s details). The P2B platform therefore has the potential for borrowers to obtain interest rates lower than those offered by the banks, and investors are able to obtain a competitive rate of return (ThinCats UK, for example, has delivered investors an average return of 10.9% p.a.). The loans are secured and borrowers have the ability to sell their loan on the platform prior to maturity.