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Exploring sub-markets within Peer-to-peer lending

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The P2P industry is growing rapidly, with the lending volume for 2014 already at £1 billion and expected to reach £45 billion within ten years.

There are three principal categories that fall under the P2P lending umbrella; Consumer, SME business and Property.

1.    Consumer Lending
•    Where the P2P lending industry started
•    Small, unsecured loans to individuals
•    Platforms buy personal data, for example from Experian or Equifax, which allows borrowers to be ranked by their credit rating as who is the most likely to repay their loan
•    Most frequently used for:
          – Funding purchases, for example cars, weddings, holidays or home improvements
          – Debt consolidation from other more expensive forms of credit, such as credit cards

2.    SME Business Lending
•    Small loans to trading Limited Companies
•    Loans can be unsecured or secured against a Company’s assets or personal guarantee from shareholders or directors
•    Platforms buy business data, for example from Companies House, Experian or Equifax and then rank borrowers by their credit rating as to who is the most likely to repay their loan
•    The risk with lending to SMEs is that the company could become bankrupt
•    Most frequently used for:
          – Working capital
          – Business expansion
          – Asset finance

3.    Property Lending
•    Loans to Limited Companies or individuals
•    All loans are secured by a 1st legal charge over a residential or commercial property, which is registered at the land registry
•    If the borrower fails to repay, the platform can repossess and sell the property in order to redeem the loan
•    This is therefore a less risky alternative to lending to a consumer or SME business with no bricks & mortar security
•    Platforms use third party professionals to value the property and to ensure clear title over the property
•    Most frequently used for:
          – Personal mortgages
          – Buy-to-lets
          – Residential refurbishment and development
          – Commercial loans

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