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Coronavirus: the impact on speciality and P2P lenders

Chris Laverty Chris Laverty

The coronavirus (COVID-19) pandemic is impacting all sectors across the globe. Chris Laverty looks at what specifically this means for speciality and P2P lenders.

Amid the global coronavirus pandemic, not only will P2P lenders face pressure from borrowers struggling to make interest and capital repayments, but investors in P2P platforms are also trying to withdraw their money following stock market losses and coronavirus uncertainty. Assetz Capital has paused withdrawals from its popular Access account, and RateSetter has informed its investors that withdrawals will necessarily take longer due to a spike in demand1.

P2P platforms have been quick to reassure investors that they expect to be largely unaffected by market panic as long as they take a long-term view, but a second challenge will undoubtedly come from their loan portfolios too. The pressure on SMEs will be intense over the coming months and businesses still have fixed costs they need to meet, even though, for many, revenues will have all but dried up. The rapid development of the situation means inventory management will have lagged behind facts on the ground, leaving businesses with inflated inventory levels and a working capital challenge.

An opportunity for P2P to be involved?

The government has announced a series of measures, delivered by the British Business Bank (BBB), aimed at helping SMEs; including cash grants, business loans, business-rates holiday, deferred VAT and income tax payments and a job retention scheme, but will this be enough to stop loan defaults? Small lenders are already pausing funding to at-risk sectors, which will only add pressure to the system. For example, P2P lender MarketFinance has temporarily paused its business-loan product to all food, hospitality, travel, transport, supply chain and freight sectors.

At times like this, the operational resilience and wind-down planning that P2P firms have been required to undertake could reap benefits. Those firms that can prove they are resilient may find there is an opportunity to be involved in the newly announced government funding scheme. Daniel Rajkumar, founder and MD of P2P business lender Rebuildingsociety, suggests that the BBB doesn’t just have to provide this finance through mainstream providers, but that P2P platforms could have a role, being well positioned to serve regional businesses2.

Questions for P2P lenders to ask

P2P firms need to assess what their position is going to be amid all this turmoil. Are you sufficiently capital-secure to withstand higher default ratios? How stable is your own funding position? Will there be political pressure on P2P firms to absorb greater losses than businesses have previously planned for? Businesses should stress test for different scenarios to understand what levels of loan losses can be borne. Certainly, the potential reputational impact on a firm of its policy towards SMEs and customers needs careful consideration, as P2P firms could play a vital role in helping SMEs during this challenging time.

For more information, or to discuss stress testing, debt financing and any other restructuring advice please contact Chris Laverty or Andy Charters.

References

  1. Funding Circle praised for coronavirus response as pandemic deepens, Peer2Peer Finance News, 2020
  2. How P2P lenders can slot into government’s SME coronavirus support, Peer2Peer Finance News, 2020

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