Europe may be the world’s capital for the alternative finance industry, taking advantage of a new lending market to prop up its small- and medium-sized businesses, but this environment could take a turn for the worse if Europe’s economy goes south.
That’s according to FRP Advisory partner Adrian Doble, who spoke on the matter at a recent panel, hosted by Legatus Law, to discuss the alternative lending industry. Doble highlighted the slowdown in alternative lending to SMEs seen in Scotland in the months leading up to the nation’s independence referendum.
“Investment stopped,” he said. “Nobody wanted to lend into a business sector that might not be part of the U.K. six months later.”
A similar situation may occur across Europe as the status of the U.K. as part of the European Union remains uncertain, leading to economic and political insecurities. “We have probably, at this point in time, got the most vibrant economy in Europe and I think we could quickly move to having quite a stagnant set of circumstances if our government doesn’t deal with this whole European issue very quickly,” Doble said, adding that he remains unbiased about whether the U.K. should remain part of the European Union or not.
The U.K.’s decision, however, will almost certainly affect investment in small businesses, and could alter U.S. investors’ recent excitement over peer-to-peer lending in Britain.
Along with the uncertain future of the U.K. in Europe, rising interest rates may also negatively impact the positive growth of the alternative finance industry that has so far grown to the world’s strongest.
But Doble’s remarks did not ignore the ongoing success of the industry. Alternative lenders are cooperating with mainstream banks to secure funding for small businesses and innovative platforms like crowdfunding have opened up the industry in new and exciting ways, he said.
“There is probably more choice than there ever has been for a small business looking to raise relatively high-risk spending that would not have been available five, four or even three years ago from the traditional banking sector,” Doble added.