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Advice and guidance on peer-to-peer structures

In 2015, peer-to-peer lending hit £4.4 billion, with a solid proportion of that going to businesses.

Peer-to-peer structures have become a popular way for businesses to lend and borrow money, but there are complex regulations and significant risks to be aware of.

While there is the potential for lenders to access high rates of return from peer-to-peer structures, not all schemes of this type are the same. Borrowers can benefit from greater flexibility offered by peer-to-peer lending systems, but it is important to consider all your options before taking the plunge.

If you are interested in learning more about alternative lending structures, or if you are seeking advice on setting up a peer-to-peer lending scheme of your own, the commercial finance specialists at First4lawyers can provide you with a free, no-obligation discussion about the options available to you. Contact us to get started.

What are peer-to-peer structures?

Peer-to-peer finance allows lenders and borrowers to bypass the banks and benefit from better rates than they could otherwise access.

Most peer-to-peer lending is coordinated via the web, and sites that facilitate this have become hugely popular in recent years. New schemes are entering the market all the time, providing lenders and borrowers with attractive alternatives to traditional bank loans.

Peer-to-peer lending sites work by matching borrowers and lenders to create mutually beneficial finance agreements. There are hundreds of different sites offering a variety of different approaches, and it is important to consider all the implications of peer-to-peer finance before entering into an agreement.

Some sites lend money to individuals, while some lend only to businesses. Other sites provide finance for all types of borrower, and the potential returns for the lender can be significantly higher than other types of investment.

What are the advantages of peer-to-peer structures?

While borrowers benefit from more flexibility than they would get from a bank loan, with funding available within as little as a few days with no early repayment fees, the main advantage for lenders is the rate of return.

Peer-to-peer lending regularly delivers rates of return upwards of 7% and 8% after fees, and some of the smaller sites claim that lenders can expect an average gross yield as high as 15%.

When lending through peer-to-peer structures, you typically stand to benefit from the option to tailor your arrangement to suit your situation. Most sites allow you to choose exactly how much you lend, from as little as £10 and with no upper limit, and you can set the timescale of the deal.

The site then takes care of the other side of the deal, by lending your money to various borrowers and repaying you through a combination of interest and borrower repayments.

Peer-to-peer structures have gained significant market share in the UK. This is partly due to the poor rates of interest that banks have offered since the financial crisis struck several years ago, and because customers who have lost trust in the banks are seeking alternative ways to save and invest.

What are the disadvantages of peer-to-peer structures?

Borrowers in peer-to-peer schemes pay higher rates of interest than they would with a normal bank loan, and charges, default rates and taxation may not always be clearly communicated by peer-to-peer sites that seek to lure borrowers and lenders in by offering flexibility and quick returns.

Peer-to-peer schemes are not covered by the Financial Services Compensation Scheme (FSCS), which means that savings and investments are not necessarily protected. Each site has its own terms that govern when you can access your money, and you can be left with less security than you would receive from a licensed, authorised lender.

I am interested in getting involved in peer-to-peer structures – what should I do?

It is important to thoroughly assess the risks of any peer-to-peer lending scheme before committing to becoming a lender or a borrower. This is where you should speak to a solicitor who specialises in the field.

There is a bewildering amount of information about peer-to-peer structures available on the internet, but First4lawyers can help you to navigate this new and emerging market player by offering you tailored advice from an expert solicitor on the risks involved, and the legal implications for you and your business.

Whether you’re looking to grow your money quickly by investing through peer-to-peer lending structures, or seeking to benefit from a flexible source of funding, you can contact us to discuss your needs with an experienced financial solicitor.

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