FP Show 2016: Crowdfunding sector 'a car crash waiting to happen'

During a panel debate on how close the lending market was to reaching saturation point at the Finance Professional Show yesterday, Philip Knight, credit and risk director at Asset Advantage, said that the industry may see some lenders quickly exit the market.

“I think the crowdfunding sector is going to crash and I think there is too much liquidity and [the rates are too low], so I think once funders start suffering, they will be shutting up shop as quickly as they opened up.

“You’ve basically got people lending money to the SME sector that know nothing about lending money in the SME sector.

“It’s a car crash waiting to happen.”

However, James Lovett, business development manager at Funding Circle, disagreed.

"I would challenge that. At Funding Circle, we've got an incredible amount of expertise in both our risk and underwriting teams - lending to small businesses is their speciality, they've been doing it for decades.

“We see a lot of new lenders who all have access to funding and it doesn’t feel like that is slowing.

“My gut feeling is that we are probably not quite at saturation point yet.”

Despite this, Chirag Shah, CEO of Nucleus Commercial Finance, was also of the view that there were too many lenders in the market.

“…Six, seven years ago, many lenders started as niche lenders focusing on particular areas.

“Now, as they are reaching a saturation point within one market, all the lenders are starting to do other products to get more volume growth.

“That is making the market very homogenous and there can’t be room for 250 lenders doing the same thing in the market.”

Michael Dean, principal at Avamore Capital, was in two minds, but did believe that the market was at saturation point.

“I think that we probably are – in terms of the number of lenders – at saturation point, but I think you’re always going to see new entrants come into the market and you’ll see current participants leave the market.

“You need to be doing a significant amount of business in order to sustain your business and ultimately you will see a number of businesses start up but fail to continue past two or three years, because there is not enough money there for them to continue.”

Norman Chambers, deputy CEO of the NACFB, who was chairing the debate, said that he thought there would be consolidation and partnerships between some of the smaller funders and some of the fintech companies bolting on to larger organisations.

“That is already starting to [happen] with some relationships with high street and challenger banks taking on board some of the smaller funders.”

“We see a lot of new lenders who all have access to funding and it doesn’t feel like that is slowing.

“My gut feeling is that we are probably not quite at saturation point yet.”