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With banks tightening their borrowing conditions, businesses, particularly small and medium sized ones, have been turning to this alternative method of finance to fund their business ventures in their droves.

Now the funding craze looks set to fill a gap left by banks and institutional investors in the real estate market – but will it work? Jim Whiteman, senior building surveyor at Bruton Knowles in Birmingham, investigates.

Peer-to-peer lending, which matches wealthy investors with businesses or individuals in need of capital through online lending platforms such as Funding Circle, Ratesetter and Zopa, first started in Britain and has been widely adopted across the world. 

Similar to crowdfunding, in which investors usually back a project or start-up business in return for an equity share or other ‘reward’, depending on the project and sum invested it could be a simple “thank you”, peer-to-peer lending enables individuals to side step the banks and directly invest in businesses by way of a loan, which is then paid back with interest.

In the last three years, the peer-to-peer lending market in the UK has trebled in size and will be soon bypass the £1bn mark.

An independent benchmarking survey of UK alternative finance found that peer-to-peer consumer and business lending platforms are the largest form of alternative finance in the UK, with invoice trading the second largest form of finance for businesses.

According to the Peer-to-Peer Finance Association (P2PFA), peer-to-peer lending increased by 121 per cent during 2013, and by February 2014, £843.4 million had been lent out via the platforms, with £263.6 million loaned to businesses and £579.8 million to consumers.

The type of businesses benefitting from peer-to-peer lending vary as wildly as the sums of money being invested, from small enterprises in need of working capital to more established companies looking to fund their next stage of growth. If peer-to-peer business lending continues to grow at its current rate, independent research has predicted that the industry will become worth
£12 billion per year within a decade.

So far, the property market in the UK has been slow to jump on either the peer-to-peer or crowdfunding bandwagon, but it’s changing, slowly.

Kevin McCloud, presenter of television’s Grand Designs, used crowdfunding to raise £1.4m for his firm Hab Housing. It is proving increasingly popular in the residential buy-to-let market too, with investors joining up to purchase property assets.

In the US, crowdfunding for real estate has attracted major players, such as FundRise and Realty Mogul. Through FundRise, people can invest in a company that buys empty or rented commercial property. It is marketed as community initiative, with the investor contributing and benefitting from the regeneration of the local neighbourhood. Investors have a say in who rents the property and a share in any return it produces.

In Columbia, a 66-storey sky scraper was built in the capital, Bogota, using money derived from crowdfunding.

The building, known as BD Bacata, was funded entirely by the people of Columbia after a high-profile ad campaign was launched to encourage the city’s residents to invest in the development in return for a share of the profits.

So will it work in the UK? Maybe not on the same scale as the BD Bacata building, yet, but there is definitely growing interest in crowdfunding and peer-to-peer lending to finance property development and investment.

Funding Circle, the UK’s leading peer-to-peer business lender, has announced that it has an extremely healthy pipeline of property finance deals that are about to be listed on its marketplace for its thousands of investors to lend on. Bruton Knowles is advising Funding Circle on the potential property investments, providing audits and valuations to ensure schemes are viable and to minimise the risk for the investors. We are currently valuing the first project in Liverpool.

Luke Jooste, head of Real Estate Finance at Funding Circle, said: “We want to help as many small businesses as possible access the finance they need to grow, and that includes small property developers and investors who are struggling to access funds via traditional sources.

“Our property team has been built from the ground up and if you combine this specialist knowledge with our market leading technology and credit assessment processes, I think we’re going to have a big impact on the property finance market.”

For real estate projects, Funding Circle has capped its loan limit at £3m, which immediately cancels out large developments, which are inherently more risky.  There are, however, risks still associated with peer-to-peer lending, no matter how big or small the project. The biggest risk for investors and borrowers in the UK had been the lack of regulation, though this has recently changed.

These changes came into effect on the 1st April resulting in peer-to-peer lenders now being policed by the Financial Conduct Authority (FCA). This should mean more rights and greater protection for those who use them. There are minimum capital requirements, rules to protect ‘client money’, and a requirement that steps are taken to make sure repayments on existing loans would continue to be collected if a lender went bust. Members of the P2PFA insist that they were already doing all of these things already.

However, peer-to-peer lending sites still aren’t covered by the Financial Services Compensation Scheme, which guarantees savings up to the value of £85,000, and there are no plans to change this.

In the US, the government dealt with the issue of regulation by passing the Jumpstart Our Business Start-ups Act 2012, or ‘JOBS Act’ as it is more commonly known.

Contact Jim Whiteman for more information on peer to peer lending, call 0121 212 7606 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

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