Not all that long ago, any company wanting to raise investment had a very limited number of options available to them: they could borrow from friends and family, go to the bank for a loan or approach venture capital firms. Technology has changed all that, with the web opening up a whole host of new investment opportunities. One of the most exciting, and the subject of this article, is peer-to-peer investing.
Simply put, peer-to-peer investing involves lending money to someone wanting to raise capital without going through a traditional intermediary like a bank.
It’s an incredibly appealing concept and could change the way both companies and products are funded.
The thing about banks and other traditional intermediaries is that they’re most interested in the business financials and its ability to make money. Factors like ethics, the background of the founders, and the kind of product or service being offered don’t necessarily come into consideration.
But for a socially aware generation of investors, those things can be important. Moreover, business owners would really rather have investors who are actually interested in their business but who leave them to get on with the business of running it.
The beauty of online peer-to-peer investing platforms is that it introduces a business to an entirely new investment pool, enabling them to quickly secure finance directly from a crowd of investors who may competitively bid to fund their loan request. It also enables investors to place their money into businesses that meet their own personal investment criteria, such as environmentally or ethically sound businesses.
Getting in early
Peer-to-peer investing is also a great option for anyone wanting to invest in young businesses, but doesn’t have the readily available capital of a traditional venture capitalist. Using the peer-to-peer model, there are now an array of platforms that allow individuals to browse through a portfolio of businesses and invest a nominal amount of money, spreading their risk across multiple investments.
While peer-to-peer investing, as with any investment, is not without risk, it may bring attractive returns versus traditional asset classes.
Between 2009 and 2015, for example, two of the biggest peer-to-peer investment platforms in the US saw net returns averaging between five and nine percent, significantly higher than the 1.5% yield a five-year Treasury Bond would’ve given in the same period.
What all of the above underlines is perhaps the most important effect of peer-to-peer investing: it’s made investing in general that much more accessible.
Just as the web means that people no longer need travel agents to book flights, so peer-to-peer investing means that investing doesn’t have to be something someone else does for you.
Sure, there are always going to be risks and there are no guaranteed returns, but the more people get involved in peer-to-peer investment, the more the overall landscape will change.
With easier access, people get a much clearer idea both of what investing and seeking investment entails.
That’s almost inevitable. Take the philosophy of peer-to-peer investment to its logical conclusion, and you might just get a completely different approach to money.
This article is sponsored by Beehive.
Beehive is MENA’s first and only regulated online marketplace for peer to peer lending
Our platform directly connects businesses looking for finance with investors that can invest and support their growth.
We apply the innovative technology of crowdfunding, connecting a business with a crowd of investors, to eliminate the cost and complexity of conventional finance.
The result is a more efficient, streamlined process that gives UAE businesses faster access to lower cost loans and investors better returns on their money.
Beehive P2P Limited is regulated by the DFSA.