The Chancellor’s plans to introduce the innovative finance ISA next year indicates just how rapidly the alternative finance market is evolving. From 6 April 2016 the innovative finance ISA will allow people to invest their annual ISA allowance through peer-to-peer platforms without being taxed on any interest they may earn. At a stroke, this opens up this retail investment product to the mass market by offering ISA investors more choice while also providing British businesses with greater access to funding. This is good news for the peer-to-business crowdlending sector.
Early adopters, borrowers or investors, are already seeing the benefits of peer-to-business lending, which offers SMEs swifter access to borrowing at lower rates while investors have the potential to earn higher returns. Even the mainstream banks are beginning to dip their toes into the alternative finance water. Metro Bank has put money across crowlending platforms, while RBS and Santander have an arrangement with Funding Circle to refer businesses they decline to these platforms. However, in reality, the banks are doing little in the way of referrals and we would expect more pressure from government to get them to ramp this up.
The Scottish Government’s intention to establish a Scottish Business Development Bank (SBDB) to support small high-growth businesses is an exciting initiative. LendingCrowd is well-placed to work in partnership with the government as we are already helping SMEs throughout Scotland.
We would also expect to see the public sector becoming more involved in lending money across peer-to-business platforms. In England, the British Business Bank was the first to move into this area and councils in Scotland are just watching for the time being but there could be a role for Scottish Enterprise to distribute cash to Scottish businesses via the platform. This would encourage Scottish councils to take this option seriously. As well as getting a better return on their money, they could also be helping organisations in their local area.
Whatever happens in the future, one thing is clear – if you have an interest in finance and investment sooner or later you will have to join the crowd.
• Stuart Lunn is chief executive of LendingCrowd