|Alternative Funding Network|
ThinCats facilitation of the UK’s first peer-to-peer index-linked loan reflects a wider change and development in the peer-to-peer and peer-to-business sector. Crowdfunding and peer-to-business lenders are growing rapidly. This was undoubtedly originally caused by the banking crisis and the unavailability of funds through normal channels for SMEs. While this continues to be a major attraction for lenders on platforms like ThinCats others are now being drawn to the sites by innovative products that provide excellent returns and good secure income streams. Such new products reflect the acknowledgement by P2P operators that in order for their sector to grow they will have to diversify their offer to appeal to more of a range of borrowers and lenders. This comes at a time when institutional investors are becoming increasingly interested in P2P as a means of generating steady returns, especially if measures are taken to manage or reduce risk. ThinCats’ policy of always taking security reflects the founders’ recognition that experienced investors require that security and stability in order to lend their money (even at the current high interest rates).
One good example of new and innovative products is ThinCats’ recent facilitation of the UK’s first peer-to-peer index-linked loan. As far as ThinCats are aware nobody else is doing index-linked loans to SMEs. This is an exciting and innovative new product and can tell us a lot about how the new sector is developing. The interest only loan to Mosscliff Power Ltd. pays an interest rate of c.7% per annum but also includes uprating of the loan capital in relation to the RPI. For a ten year loan lenders are able to take home a real rate of interest without worrying about inflation as the rate is guaranteed. The borrower revenue stream is also inflation proofed as the index linked income from the feed in tariff (FIT) is guaranteed by the government. This provides stable revenue streams for both borrower and lender. It also means that, as the coupon on the index linked loan is lower at 7% than most loans on Thincats, from the point of view of a borrower who can take on the inflation risk this is a cost effective way to borrow. Although this first loan is linked to RPI ThinCats can link to any index or an interest rate like LIBOR.
ThinCats alongside other peer-to-peer lenders are pioneers at this early stage in the industry but are clearly not resting on their laurels. The Index-Linked Loan, as well as the other products coming up in the ThinCats Lending Club series, show those who decry the sector as a trend that P2P is here to stay. The larger players in the market are eschewing the most risky deals and consumer involvement in favour of a more stable and varied product line that will only increase over time. It has already been written elsewhere that if the banks are not careful then their place in the traditional lending markets will be filled by alternative lenders. The P2P developments and rate of growth would seem to indicate that the threat is becoming increasingly real.