Charles Darwin’s theory of evolution centres around advancing and adapting successfully to your surroundings for survival; an inability to adapt, no matter how big or successful you are, increases the likelihood of extinction.
Whilst banks are unlikely to become extinct, the rise of alternative funding sources like Funding Circle and other peer to peer lending platforms is challenging the accepted order and offering a glimpse of how business funding is evolving.
The funding tap has wavered between “off” and barely trickling since the original credit crunch. The effect has starved businesses of the finance they need to grow and develop, particularly the smaller ones. The funding that is available has been subject to ever more convoluted ‘processing’ with waiting times for the lucky ones measured in months.
Fortunately, peer to peer lending platforms, like Funding Circle, are showing businesses and their advisers that they no longer need to treat banks as the default source of funding.
These firms offer a way for businesses to circumvent the banks’ stranglehold on commercial funding. This online lending platform brings private investors together with businesses looking for funding. By creating an interactive marketplace, they allow both investors to make their money work harder and small businesses requiring funds to develop their propositions.
Business owners and their advisers need not tolerate the delays and lengthy processes that are so regularly a feature of bank lending. Monopolies with a few big players are rarely good for the customer.
As new competition is introduced, service standards rise, and extinction of the traditional banking model edges closer to reality. Of course, it will take time for peer to peer lenders to mount serious competition to the status quo.
However, with our lending now exceeding £1 million per week and the application to drawdown process taking days rather than months, businesses and their advisers are already experiencing a new found financial freedom independent of the banks.
The Funding Circle facility challenges the banks’ stronghold on two levels. On the one hand, investors looking for a better return are shunning the paltry savings rates at banks and voting with their feet. They see our proposition as an opportunity to earn a better return on their money, albeit with a different risk profile.
For businesses looking to borrow, the default position of borrowing from a bank is looking particularly shaky. In the Internet age, where businesses and investors can use our platform 24/7, the banks’ old world nine-to-five model with its slow, remote and archaic decision making, based on a tortuous paper gathering exercise, looks completely out of step with the needs of 21st century business.
In the same way some species die out whilst others emerge, evolution is the only constant and unwittingly, the banks have provided conditions for platforms like Funding Circle to demonstrate that both businesses and advisers now have a genuine alternative funding source.
Laura McMullen is head of business development at Funding Circle
