Oli Cavanagh, chief commercial officer and co-founder of Flender, talks about the rise of alternative finance in Ireland and the EU and why the model is so appealing.
Bank finance is the traditional way small businesses raise extra money to invest in their business; to expand or to ensure working cash flow.
However, tribes of financial technology (fintech) firms are emerging across Europe to offer small businesses alternatives to traditional bank finance.
Irish firm Flender, headquartered in Dublin, is one such fintech challenger. It is an online peer-to-peer lending platform that allows people to lend to small businesses.
Oli Cavanagh, chief commercial officer and co-founder of Flender says there is a growing appetite for peer-to-peer lending because the risks for investors are low while the returns are high, typically over 10% on the money invested.
“What we are seeing is that people [lenders] with money want to get a good return, but they also want to invest in businesses that appeal to them in some way. For example, if your passion is food, you may like to invest in food shops or restaurants or producers.”
Another feature of Flender is that the businesses seeking the loan can set their interest rate to attract would-be investors.
“Everything is transparent,” explains Cavanagh. “If a business wants to raise €30,000 to expand or buy new stock, it can set the rate at 9% or 10% or 12%. Obviously, the rate will play a part in attracting investors.
What do the banks in Ireland think about peer-to-peer lending? “I think they are looking at the model with interest. P2P lending is an agile way for SMEs to access money and it compliments traditional SME lending by banks. Banks across Europe and the US are curious about the model, and some are even investing in the larger P2P platforms,” says Cavanagh.
Cavanagh is keen to point out that Flender is not a platform for startups. The businesses that qualify to seek loans are credit checked in the same way a bank would credit check a customer. “Our head of credit is Colin Barry, formerly a senior credit underwriter at AIB,” says Cavanagh.
“Flender is a platform for businesses that have cash flow and can prove that they can pay back the money to investors.”
This has proven to be the case. The default rate on Flender for its first year of trading is just 0.01 per cent.
Flender was founded by Oli Cavanagh, Kristjan Koik, and Jeremy Davies (pictured above) in 2014. Today it has over 4,100 lenders (flenders) on the platform and says that after one-year trading, over €2,400,000 was lent to small businesses.
The average interest rate return to investors was 10.3%.
“What we offer small businesses is quick, flexible access to money. They are very much in charge of how much they can raise and what interest rate they charge,” says Cavanagh.
Also, what about privacy and data? “We handle the digital contracts and legal framework, so the borrower’s financial information remains private. We check their credit rating, yes, but their financials remain private.”
What does the future hold?
“We are growing, quickly, and raising finance to do this, which is where we want to be. More lenders are joining, and small businesses are becoming aware that there are alternatives to traditional debt finance. We are also launching new sector-specific marketplaces which will allow people to borrow and lend much larger sums of money. We also have a licence to trade in the UK. And things are moving quickly. We recently saw the fastest P2P deal in Ireland. €100K was raised by vStream in less than one second. Now that’s fast and agile.”
You can view the Flender marketplace here.
The rise of peer-to-peer lending – 9 interesting stats
- The peer-to-peer lending industry started with Zopa, a personal finance P2P lending firm in the UK, in the aftermath of the global financial meltdown of 2008.
- Since its establishment, Zopa has issued over £3.4 billion worth of loans to borrowers in the United Kingdom.
- According to the research firm, Transparency Market Research, “the global peer-to-peer market will be worth $898 billion by the year 2024, from $26 billion in 2015.”
- The Cambridge Centre for Alternative Finance says the P2P finance market in Europe was worth €7.7bn by the end of 2016. €5.6bn of that total was accounted for by the UK.
- The volume of P2P lending in Ireland was estimated at about €12 million in 2016. The figure for 2018 is expected to be significantly higher.
- SME P2P lending is significant, with credit, invoice trading and equity-based crowdfunding accounting for 40 per cent of the entire P2P market in the EU.
- France, Germany and the Netherlands are now the three largest alternative finance markets outside the UK.
- While the Irish P2P lending market has been growing over the last few years, it still accounts for less than one per cent of SME credit.
- Flender has full authorisation from the UK financial regulator to operate in Britain.