Traditional avenues such as bank loans are simply no longer on offer for many business owners, driving many into Alternative Finance.

 

Alternative finance is the modern financial platform, based around a more innovative attitude towards financing new projects. These activities involve a more community-driven environment, where fundraisers are connected directly with funders.

One such financing activity is peer-to-peer lending, which is now receiving intense scrutiny. In a recent review of the industry, the Financial Conduct Authority has proposed tougher rules for how investors operate.  The financial watchdog is particularly concerned about the expected rise in interest rates, and how high-risk loans could impact new players.

All of the FCA proposals will be subject to consultation, but their approval will bring great changes to investors. The financial watchdog will try to ensure the creditworthiness of borrowers is readily available to investors and are taken into consideration when investment decisions are made. New safeguards will no doubt be developed to protect vulnerable individuals in the event of the borrowers’ financial collapse.

 

The FCA said many peer-to-peer platforms were “emphasising the positive nature of investments while failing to balance this out with appropriate explanation of risks” and “creating a sense of scarcity that might encourage investors to act impulsively”.

The last decade has suffered from a number of financial crises. As a result, many banks have drastically cut back on lending, making it even more difficult for growing businesses and particularly SMEs, to find finance. It seems that Alternative Finance may be the way forward for many. But now that the sector is growing, there is certainly a need for some form of regulation. It appears the FCA is poised to provide this, together with insisting that investors have access to financial and other information about a borrowers performance.

This is clearly a welcome development. At the Credit Protection Association, we have long since championed the need for businesses of all types to make use of sophisticated credit information to reduce risk and enhance safe sales. We are also proud of the fact that for many of our Members, effective use of our collection facilities and consequent positive cash flow, eliminates the need for borrowing together.

 

Please call us on 0330 053 9263 to discuss how CPA can help your cashflow.
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