Peer-to-peer lending is rapidly winning over small and medium-sized enterprises (SMEs) in Spain. Innovative platforms are reducing the dependency on traditional banks because they have more agile lending processes and technology equipped to meet the needs of entrepreneurs.
Peer-to-peer financing has been hugely successful in the US and in the UK. Now with more platforms extending their services to European markets, in particular Spain, SMEs are switching to alternative finance methods in their droves.
Since the global financial crisis, it has become increasingly difficult for small businesses to access bank finance in Spain. Cash-strapped banks have focused on serving large corporate businesses that employ lots of people and have strong political backing. They prefer to arrange a smaller number of larger loans to optimize their administration costs
This has been to the detriment of SMEs that need smaller loans. Banks have tightened up the rules required for SME business loans, making applications more time consuming and more likely to be rejected. Many solvent SMEs have a hard time securing bank loans because they have a short trading history or are yet to demonstrate consistent profitability. Without the same kind of political clout as big business, SMEs have little bargaining power.
This has created the perfect conditions for a banking revolution. SMEs believe banks are standing in the way of growth when they need them most. They have lost faith in banks and are more open to alternative funding sources than ever before.
Peer-to-peer lending platforms have entered the banks’ territory with superior weapons – they are starting from scratch and are nimble – they don’t have the overhead costs of traditional banks and can be more generous when it comes to credit risk and providing loans to businesses with limited trading histories.
Reducing the old guard’s stronghold
Thanks to peer-to-peer lending platforms, SMEs no longer have to put up with outdated and cumbersome lending models. Qualifying SMEs can quickly secure the capital they need to grow their businesses via online marketplaces that are easy to use and provide a personalized service, along with expert financial advice. While the banks continue to make staff redundant, as a result of the economic crisis and the need to restructure, online lending platforms are snapping up former bank employees and putting their technological expertise and financial knowledge to good use.
Through MytripleA we provide an effective source of funding for SMEs, enabling them to obtain capital from a pool of online investors. Since MytripleA launched, in 2015, we have experienced an 85% growth and completed a total of 110 transactions. As the only fully regulated business finance platform operating in Spain, we offer much faster access to finance than traditional routes. Our online applications are simple and we provide responses to applicants within days, not months. We can do this because we have automated manual banking processes.
We evaluate data using sophisticated technology, which can assess the actual characteristics and cash flow of a business, and what the risks are, rather than focusing on what assets the business or business owner has. SME businesses can be successful but tend to be asset light – banks don’t get this and don’t have the flexibility to accommodate them.
This has created a massive market opportunity for peer-to-peer platforms, after all 99% of businesses in Spain are SMEs and banks represent 85% of the SME’s external financing. We adapt our financing to meet both short-term and medium-term financing needs of SMEs. In addition, our financing leaves no records in the Bank of Spain’s debt database, which makes it much more attractive than banking debt.
Our simple to use platform also makes investing convenient and offers high quality investment opportunities, providing a new source of income for our growing investor base. We currently provide insurance guaranteed loans for conservative investors and non-guaranteed loans that have higher risk and higher returns.
We believe traditional banks have lost their competitive advantage. If they remain unable to adapt to this new way of lending they may become redundant to SMEs. Peer-to-peer platforms are transforming the lending market, providing attractive alternatives to finance. These new entrants are more agile and have more sophisticated armory – it’s a battle the old school banking systems are unlikely to win.