Crowdfunding tipped to be next bubble to burst as sector lends £507m a quarter


David Postings, chief executive of lender Bibby Financial Services, said there was ‘potential overheating’ in the small business market and argued that some new funding methods could lead private investors to ‘come unstuck’ by lending to small firms.

Postings warning comes as Britain’s peer-to-peer lending sector enjoyed a record quarter. Figures from the Peer-to-Peer Finance Association issued this weekend showed that the eight largest lending platforms arranged £507 million of loans to consumers and small firms in the three months to the end of June. The total lending by the industry has now reached £3.15 billion, it said.

Peer-to-peer lending platforms such as Funding Circle, Rate Setter and Zopa allow savers to lend money to individuals or businesses at a rate they choose, cutting out the middle man of the bank or building society.

Since the financial crash of 2008 many small firms have complained that loans have been hard to come by, with the big banks singled out for criticism for their cautious approach to lending.

However, Postings said there were now signs that there could be too high a supply of new funds. He said: ‘There are some signs reminiscent of 2006/7. Those signs to me indicate there’s a potential overheating in small business world, if they get too confident. I don’t sense it just yet, but there’s a possibility of that.’

Bibby advances £400 million a year to small and medium-sized firms, which it funds by chasing their unpaid invoices. Postings warned of the risks of newer forms of fundraising such as peer-to-peer lending and crowdfunding, saying: ‘In the case of these new crowdfunding platforms, there’s no capital, no guarantee and it’s the little investor who’s going to come unstuck.

‘At the moment it’s all very benign, nothing’s going wrong. I hesitate to say it could be a misselling of the future, but it is just possible.’

Postings, who worked at Lloyds and Barclays before joining Bibby, said: ‘There’s a view the banks were all idiots and these new players are all geniuses. I don’t buy that. Some of them will do well I’m sure, but I’ll bet you a few don’t. I can’t call the timing. It could be two years. The longer it takes, the worse it will be.’

Julia Groves, managing director of the Trillion Fund and director of the UK Crowdfunding Association, said the total number of members of crowdfunding platforms was more than ten thousand. She said that figure was set to increase because of the introduction of peer-to-peer Isas in the Budget. She added: ‘A huge number of bank accounts and cash Isas have been paying less than the rate of inflation, so the new Isa is good news.’

However, she agreed there were too many services in some areas, adding: ‘There are ten property crowdfunding platforms now. Do we really need ten? There is always a worry there will be a bubble.’
But she said the industry was maturing and that while some would be driven out of the business those left would be more professional.

Groves said: ‘A lot is going to change this year, with many more grown-up investments by people who have spent their life making deals.

‘There will be a significant crowd bringing a huge amount of money to bear. But that’s exactly what is needed to finance the engine room of the economy – the small and medium-sized enterprises.’