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What's really behind growing demand for P2P loans (Part 1)


Behind growing demand for P2P loans there are numerous reasons, most of them are enumerted below.


But first, let's discuss, what are basic conditions for specific P2P types.



Consumer P2C loans:

  • Mostly focused on the segment of consumers with an average or below average income level;

  • Mainly for an amount not exceeding $ 200-300 (within one investment);

  • Designed for duration 12-24 months


Mortgage P2C loans:

  • Mainly focused on the segment of consumers with an average income level;

  • Mainly for an amount not exceeding $ 10,000 - $ 20,000 (within one investment);

  • Designed for duration up to 5 years


SME P2B loans:

  • Mostly focused on the segment of companies with a turnover of no more than $ 100,000 per year;

  • Mainly for an amount not exceeding $ 10,000 (within one investment);

  • Designed for duration up to 36 months


Student P2C loans:

  • Mostly focused on the segment of consumers with an average or below average income level;

  • Mainly for an amount not exceeding $ 1,000 (within one investment);

  • Designed for duration 12-24 months


Picture 1: Major demand factors for P2P loans



Narrowing of financing for SMEs from banks

Regulatory restrictions and additional reserve requirements imposed on banks after the 2008 crisis make the small business lending business unprofitable (which, given negative rates in Europe and near-zero rates in the United States, is completely incompatible with the interests of credit institutions). Under these conditions, P2P platforms and other forms of alternative financial become suitable for borrowers alternative


Flexibility of financing models

Traditional forms of bank financing can be characterized as inflexible: especially in a situation where the borrowing and overdraft limits are exhausted when a large order is received. When using alternative financing and P2P, additional flexibility is provided by a wide range of options - both when deciding what type of financing is required and how to repay the money raised.


Tailored-made approach to clients

Most traditional financial institutions provide loans on a one-to-one basis, which does not work for many businesses. On the contrary, alternative financing solutions are usually completely individual, and the object accurately reflects the needs of the business.


Personalization

P2P financing offers a much more personalized option for modeling a borrowing transaction than some of the more traditional types of business financing. Funding is done according to a unique business profile, including the industry in which the business operates, the company's turnover and, most importantly, the business purpose.


Borrowing cost

Alternative financing, and in particular P2P lending, often creates added value. P2P and crowdfunding platforms can increase business profitability by eliminating financial intermediaries. It is this reason that is most often referred to as the key one when choosing between classic lending and P2P.



Picture 2: Consumer preferences


To be continued...

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