The alternative small business lending market has some of the hallmarks of the market conditions that led to the 2007 financial crisis, claims Bibby Financial Services Chief Executive David Postings.
In an interview with Financial Times published Wednesday (March 16), Postings warned that P2P direct business lending sites are creating a market bubble and flooding the space with risky loans.
“We are seeing signs of overheating in the small and medium-sized business lending market,” he told the publication. “Credit terms are stretched, and pricing is down. It has all the hallmarks of what happened to personal credit pre-2007.”
“There will be a crash sooner or later,” he declared.
However, not everyone agrees with the company, which provides financing for businesses against their outstanding receivables.
The publication spoke with Peer-to-Peer Finance Association Chair Christine Farnish, who spoke to the benefits of the alternative lending market.
“For businesses, the benefits are plain to see,” Farnish said. “Not only are we able to fulfill creditworthy small businesses with their funding or invoice financing needs, but we are able to do this much more quickly and efficiently than the traditional players.”
Farnish pointed to stringent credit underwriting processes, due diligence and other steps to safeguard the lending process.
“We do not provide funds for startups, nor do we provide equity-based crowdfunding, where the risks are much higher,” she said.
According to reports, equity investments are among the riskiest for alternative small business lending; one in five equity investments have failed, the publication said.
“Peer-to-peer is unproven through a credit cycle,” Postings said. “The platforms are not at risk, but the people who put the cash in could lose everything. If you put your money in a bank, the shareholders take a hit; they are the ones taking the risk.”
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