Some call it a gold rush, but one thing is for certain – venture capitalists and seed funders are looking to cash in on what has obviously become a strong, growing and permanent segment of the financial marketplace.
The alternative lending industry has hit the Trillion dollar mark, and all signs lead to continued growth in what has become a mainstream lending marketplace.
In the US, two of the largest peer to peer lending platforms both saw huge IPOs (a total of $10.3B combined) recently, spawning a wave of investment activity. The reality of such successful capital investment served as a signpost for venture investors who want to see more of a profit margin in their portfolios.
According to a CrunchBase data report, $340 million was poured into alternative lending start-ups by venture capitalists in the first two months of this year. There were a total of 17 fundings, with an average of $23 million each, quite a jump from the average of $14 million seen in 2014.
Marketplace Lending Success Paved by Peer to Peer Lenders
Peer to peer lending has succeeded because the loan platform is easy to navigate and the overall process is organized and competent. More borrowers are able to find financing for their needs, even those who would be declined by banks or suffer under the weight of high fees and interest rates. The peer to peer lending platform is online, accessible, stress-free, moves quickly, and the results are much more favorable.
The stability of the marketplace lending industry, with its proven track record of success, has allowed personal lending platforms, such as Peerform, to expand their menu of offerings to fit the full range of consumer needs, such as mortgage, debt consolidation, medical debts, automobile financing and military loans. Qualified borrowers can obtain unsecured loans ranging between $2,000 to $35,000, which can be used to consolidate debt, remodel his home, take care of an uninsured medical procedure, or relocate to a better city.
Marketplace Lending is Transparent
Investors have recovered from the 2008 meltdown, but more than ever they are looking for results and for investments that will weather any downturns that may come up in the near-term. Investors want transparency: statistics, and hard data about a platform’s business dealings and success. The alternative lending market platforms provide all of this to venture investors, giving them a level of comfort to make big investments in this growing industry.
Marketplace Lending Better than Banks
Following the 2008 crash, the federal government put strict regulations in place requiring banks to hold more cash on their balance sheets, which resulted in less lending, a move that hurt individuals and small businesses. The government also lowered interest rates in an effort to get the economy going again, which depressed investment yields. Around this time, the internet was continuing to flourish, with new technologies emerging that made it easier and safer to conduct financial transactions online. This combination created fertile ground for an online, non-traditional loan platform to emerge and thrive, satisfying both the demands of consumers looking for loans and investors looking for better yielding investments.
Peer to Peer has Grown Up: Marketplace Lending
As more institutional investors have become the source for peer to peer loans, the term “marketplace lending” has become much more appropriate for this dynamic industry. Investors searching for higher returns are finding them in the alternative lending marketplace. For instance, according to Bloomberg, at the end of last week P2P loans were yielding around 7.6%, while two-year Treasury notes were returning at best 0.6%.
Forbes’ 2015 top eight “Midas” list of emerging venture capital firms included two who were investing heavily in alternative marketplace lending: Canvas Venture Fund and Foundation Capital. American Banker named marketplace lending as its “Innovation of the Year” in 2014, noting the solid rise and flood of capital going into alternative marketplace lending companies. According to American Banker in 2014, 80% of alternative marketplace loans were funded by institutional investors.
The marketplace lending industry has changed the face of lending throughout the world. The future is only brighter with boundless benefits for consumers, investors and marketplace lenders.