The Growth of Alternative Lending

It’s no secret that P2P lending ecosystem has exploded but we constantly get questions about our views on the future of the alternative lending ecosystem. I want to address that in this blog.

There are numerous articles about banks slamming brakes on lending especially to small businesses. Since financial crisis the bank lending has been restricted due to various reasons like regulations, higher capital ratios, higher credit requirements and in general lower risk tolerance. This enabled the alternative lending industry to thrive and fill in the void and rightly so since small business are the core of any economy.

There are numerous institutional funds, hedge funds and family office entering the alternative lending space in search of higher yields. The lending as an asset class is also less volatile and less uncorrelated with traditional asset classes which makes this an attractive investment especially for the part of the portfolio which is marked for alternative investments.

However the lending asset class is fragmented, non-standardized and non-trivial to access. With more than 75+ P2P platforms in UK alone and several other balance sheet lenders, understanding the risk underlying the loans originated by these platforms, creating a diversified portfolio of loans across multiple platforms and sectors is a huge pain point for investors. This is what we at Alterest( aim to solve.

There are several questions about this ecosystem when interest rates raise or when we go through a down credit cycle. While we are big believers in alternative lending we do acknowledge the fact that there will be some platforms which will go out of business either due to sub standard credit models or lack of origination. Several more platforms will consolidate as well. However the fundamental fact beneath this ecosystem which is alternative lending is filling the void left by the banks is rock solid and this ecosystem will only continue to evolve and we remain bullish on this new evolving asset class.