‘Crowdlending’: Loans without going through banking

  • Crowdlending, an alternative form of financing for people and companies without going through the bank, lent in Spain 20 million euros in 2014.
  • A user states that “the real big change with respect to banks is transparency, you know where your money is going to stop”
  • View or download the PDF of ‘My Pocket’ for the month of April. 

Internet reduces the number of intermediaries again; Now, the banks. Crowdlending allows you to find financing for people or companies, without going through a bank, a financial institution or public financing.

Crowdlending (in English: crowd, crowd, lending, loan) puts in contact, through a web platform, private investors with people and companies that request a loan- Diablosanctuary. This alternative financing model has been active in the United Kingdom and the United States since the beginning of this decade, but in Spain, it is still a market to be exploited. 

This platform lent in Spain around 20 million euros during 2014 There are no official data on the money lent through these platforms in Spain, but the sector estimates it at around 20 million euros in 2014. The discreet figure compared to more than 2,000 million euros in loans from the United Kingdom, 5,000 million from Lending Club, the main US company in the sector, or 8,000 million from Creditease, the Chinese giant that celebrates its third anniversary this year.

Not having the banks simplifies asking and giving money, both in the case of people (P2P, or peer to peer) and in loans for companies (P2C, or peer to the company), the most widespread modality. In exchange for this simplification, the platform takes a commission.

The process is simple:

  • 1) The person or company that needs money contacts the crowdlending platform, defines the loan they want and facilitates the status of their accounts.
  • 2) The platform analyzes the creditworthiness of the borrower and rates the risk.
  • 3) If the platform approves the loan, the project is published for investors to decide if they want to lend their money. In some platforms, such as Arboribus or Grow.ly, the interest offered by the borrower is modified in an auction, and it is up to investors to raise or lower the interest based on the risk of the investment.

More transparency regarding banks

 More transparency regarding banks

“I think the real big change with respect to banks is transparency because with crowdlending you know where your money is going to stop,” explains Teodoro M., a user of one of the oldest crowdlending platforms. Although the volume of financial information about the borrower varies depending on the platform, it is usual for the lender to have available the status of the company’s accounts, in addition to the evaluation made by the risk department of the platform. crowdlending

Between 90 and 95% of loan requests are rejected for failing to meet solvency criteria At a time when the official price of money is at historical lows , a record downward spurred by the interest rate to 0.5 % set by the ECB, the interest offered by crowdlending can be seductive, with rates ranging between 5 and 15%. “Everyone knows, or at least those of us who usually invest, that high interests are always accompanied by a high risk,” says Jaume P., a veteran investor with 18 loans in
4 platforms

The crowd-lending platforms in Spain do not hide the risk of non-payment of their borrowers and try to reduce this possibility by rejecting those projects that are not clear: between 90 and 95% of incoming loan requests are rejected, usually because meet solvency criteria or because they are newly created companies.

Regulation of the sector

For now, the sector’s default rate is low and most platforms do not exceed 0%; those that do move between 1 and 4%. In any case, these figures are far from those published by the Bank of Spain, which calculated the delinquency rate of Spanish SMEs in 2014 at 28%.

However, the youth of the crowdlending sector in Spain also helps ensure that delinquency is non-existent since some platforms do not add more than one year to active service. In the absence of official data of the sector, some investors publish their problems of the collection in the group of Crowd Dealing Facebook, where they also collect data of defaults that differ in some cases from those that publish the crowdlending platforms themselves.

It is necessary to regulate these sources of alternative financing The Spanish Banking Association (AEB), which groups 89 entities, practically all those operating in Spain, does not manifest itself in particular over crowdlending, but rather does so over the crowdfunding. According to a spokesperson for the association, ” crowdfunding has the potential to play a role as a complement to traditional funding sources, especially for SMEs, entrepreneurs and self-employed people; and it can be used for high-risk investments, in cases such as those of start-ups, which may encounter difficulties in bank financing “.

Likewise, the AEB also expresses the ” need for regulation of these sources of alternative financing that pursue the same objectives as the regulation of financial institutions, that is, to ensure their stability and transparency, thus preventing them from becoming in an uncontrolled risk, “they explain.