FCA regulation to increase social lending to small businesses from 2014

Social lending to small businesses is expected to increase from 2014 when the  sector will be fully regulated by the Financial Conduct Authority (FCA), according to a survey by rebuildingsociety.com, a leading peer-to-business website.

More than one in four (26%) of those surveyed said that they would consider joining a lending scheme from next year, compared with 17% who would consider joining in the coming 12 months before industry regulation comes into effect. The sector is not currently regulated, which means that, unlike a conventional savings account, any deposit made is not covered by the Financial Services Compensation Scheme (FSCS), although default rates remain very low across the sector.

The study also looked at the biggest obstacles for the sector, which is set to boom – with as much as £12bn to be lent through SME P2P schemes annually.

Top barriers for the industry included:

-A lack of awareness of the sector, with nearly 6 in 10 (59%) of consumers not knowing what the term meant.

-A lack of knowledge of how the schemes worked – with 54% citing this as a concern.

-The fear of borrowers not repaying the loan was a worry for 46% of those surveyed.

This is a hugely positive indicator of consumer interest in the sector as a whole though, and this confidence is well placed: individual lenders can earn between 8% and 15% compared with less than 4% on most savings accounts – which is barely enough to keep up with current levels of inflation.

The research shows that social lending is set to become an important source of finance for small and medium businesses. Around 24% of SMEs believe that they would struggle to access finance in the next 12 months. Rebuildingsociety.com however estimate that 16% of small businesses would consider applying for a P2P loan over this period.

Companies like rebuilding society, therefore, clearly have an important role to play in the future success of SMEs as social lending continues its journey into the mainstream of UK financial services.


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