The crowdlending or P2P lending industry appeared just over a decade ago. The idea of connecting borrowers and lenders, often referred to as ‘the crowd’, directly to cut out the middlemen – the banks – was a brilliant concept, and has since proven to be one of the most successful innovations in the history of finance. P2P lending is now a mature form of finance seen in every advanced economy. It has lowered borrowing costs, while simultaneously offering higher rates of return for lenders.
The format is still open to improvement and the latest big advance has been pioneered by P2P platform ArchOver. Launched in 2014, ArchOver has made improvements both to the borrower and lender sides, giving everyone a better deal.
First, ArchOver is targeting a neglected space in lending. Founder and chief executive officer Angus Dent explains: “If you need £100,000 or less you can sometimes get an overdraft. If you need a couple of million pounds you can go to venture capitalists or to capital markets like AIM. However, it is often very difficult to raise money between those two amounts, particularly if you are a smaller company.”
The financial crisis in 2008 exacerbated this shortfall. Even as lending picks up in other areas, the needs of SMEs to raise £100,000-plus remain unmet. ArchOver aims to satisfy this need while simultaneously increasing the security profile of these loans. This is where the second innovation comes into play. Dent explains: “We use a ‘secured and insured’ model. The most secure
asset in the case of a typical SME is its ‘accounts receivable’, or trade debtors. We use these unpaid invoices as security. Where we differ from other P2P providers is that we look at the whole book, not just one invoice. This provides us with a deeper understanding of the borrower.”
Using the complete accounts receivable ledger makes life simpler for the borrowers, too, since it means they are not required to crunch numbers on an invoice-by-invoice basis - they can take a longer-term view of their financial requirements.
Additional security is provided by taking out credit insurance against the accounts receivable so that, even if a customer goes bankrupt, the lenders will still be paid out. Added to this approach is ArchOver’s policy of only lending to highly stable, creditworthy enterprises.
Lenders naturally want a good return on their cash, too, and ArchOver currently offers between 6 and 8 per cent over varying fixed terms from three months to three years. Lending is determined by each individual project. “We also have lenders who opt to back all deals until their capital is allocated,” says Dent. “Lenders are free to choose their own method.”
ArchOver is majority owned by the Hampden Group, a leading provider of insurance and accountancy services in the City. ArchOver management is also reassuringly experienced; Dent himself is a chartered accountant, with a long history of running AIM and TSX-listed enterprises. “We’ve lent more than £17 million so far,” says Dent. “We are nationwide, from engineering in Penzance to healthcare in Perth.” Now the model is established, ArchOver is looking to expand its portfolio of lenders and borrowers. “High-net-worth individuals ought to find our approach attractive,” says Dent. “We have made significant improvements on the P2P model, which was already reliable. We are funding a big market niche, but in a better way. I invite both lenders and companies looking to raise funds to take a close look at ArchOver.”
To find out more visit ArchOver.com
