How big is the potential market for P2P lending to businesses? Today, Funding Circle and ThinCats, the two largest business lending platforms, have £475.67m and £78m respectively of loans outstanding. The major banks’ stock of lending to smaller businesses stood at £33.8bn at the end of Q1 this year, according to the British Bankers’ Association stats. That means P2P platforms now account for a little over 1.6% of the outstanding stock of lending to smaller businesses (although the P2P figures I’ve given include a small amount of property lending that would figure elsewhere in the bank stats but let’s leave that small quibble aside for now).

 

Working out how big the P2P share could get is at best an inexact science but it’s obvious that it is going to increase, given that the banks’ stock of lending to small businesses continues to fall as they repay more than they borrow, while the P2P lenders continue to expand their books rapidly, albeit from a far lower base.

 

While looking for something else, I recently came across the info that the SME Finance Monitor gathers on this area as part of its waves of survey work that question several thousand small businesses each quarter. According to the Monitor, “awareness of crowdfunding” among businesses that either use or would consider using external finance has been growing steadily, from around 25% in 2013, to 32% in the second half of 2014 and on up to 38% in the first quarter this year. So awareness among potential customers is clearly moving fairly quickly in the right direction.

 

Taking the results for the 13,463 businesses surveyed in the 12 months to March 2015, awareness averaged out across the year at 31%, leaving 69% of the market still unaware that P2P exists as an alternative source of funding – plenty of room for growth there.

 

But among the 31% who were aware, two-thirds said they wouldn’t consider using this source of funding for their business. About 10% would consider it but aren’t using it, and the remainder either use crowdfunding already or have applied – roughly in line with the figures for market shares at the top of the article.

 

You could simply extrapolate those figures in a straight line (always a dangerous activity) and conclude that about a third of those businesses that use external debt funding are potential customers for P2P lending platforms, and that at least 5% of these businesses might actually have loans outstanding from this source at any one time. Extrapolating like this is always risky, as I say, but you have to start somewhere.

 

The interesting questions revolve around what is holding back the two-thirds of businesses that are aware of P2P lending but say they wouldn’t use it. I’d be very interested to hear views on this in the comments box – might it be the need to publish their financial data, for example? Perhaps questions on this are something the SME Finance Monitor should add to its survey work? Perhaps the P2P Finance Association should be lobbying for a seat on the steering committee that oversees the SME Finance Monitor?

 

Also, I can’t help wondering whether their choice of terms is confusing the picture. Most people nowadays associate “crowdfunding” with equity investment and P2P with lending. Given the SME Finance Monitor is all about debt finance, I’m assuming that survey respondents understand that they’re being asked about P2P lending rather than equity investment. That may not be a safe assumption and confusion on that score would definitely invalidate the figures. The SME Finance Monitor could be a really useful tool for mapping the reach of P2P lending into the SME market – but not if there’s any confusion among the survey respondents over what they’re being asked about.