P2P Lending VS Equity Crowdfunding: The Votes Are In!
Research by Peter Baeck, Liam Collins and Bryan Zhang from the University of Cambridge has revealed that £1.6bn has been lent through peer-to-peer lending websites, whereas just £84m has been raised in the higher-risk equity crowdfunding area.
Just £26m has been raised in rewards crowdfunding.
The research is part of a major study into the rapidly growing area of alternative finance, of which P2P lending is a large part.
Staggeringly low bad-debt rates
Presenting the research at industry conference LendIt, Bryan said that the median average number of business loans we lend in is 52 and, on average, we're lending just over £8,000 to UK businesses. When lending to consumers, we're lending over £5,500 each.
The average bad-debt rate for consumer loans is less than 1%, which is staggeringly low compared to banks' default rates. The average acceptance rate is also very low at 10%.
Why do we do it?
In a poll of over 4,000 consumer borrowers, the University of Cambridge and Nesta found that individual lenders to consumer borrowers are very evenly spread in terms of their income, showing it's appealing to all:
- 17% earn less than £15,000.
- 20% earn £15,000 to £25,000.
- 20% earn £25,000 to £35,000.
- 19% earn £35,000 to £50,000.
- And 17% earn £50,000 to £100,000.
It is no surprise that few P2P lenders are under 24, whereas over half are 45-64. The next biggest group is the over 65s.
78% of individual lenders who lend to consumers said that they did so because of the interest rates available. 60% also need the comfort of a bad-debt provision fund.
Over two-thirds of us have social reasons, finding it important or very important to support an alternative to the banks. 76% thought it was important or very important for diversifying their investments. Three in 10 also lent out of curiosity.
What do borrowers say
P2P lending is social lending, so let's see how we're helping the other side. In a poll of over 6,000 consumer borrowers, the University of Cambridge and Nesta found that:
- Nine out of ten consumer borrowers appreciate what individual lenders make possible for them, since they are attracted to the lower interest rates they can get.
- Nearly nine in ten also appreciate the better terms and conditions that they can get, such as free early repayments.
- One in four borrowed through P2P out of curiosity.
- Less than one percent of P2P borrowers surveyed said their financial situation has worsened.
- 96% of borrowers are likely or very likely to go to P2P first next time.