An accountant’s guide to P2P lending

SMEs in Asia have long been underserved by traditional banks. Even in the financial hub of Singapore, which has over 200 registered banks and financial institutions, around 61 percent of SMEs still lack access to financing. 

The problem is especially egregious in China and Southeast Asia, where bank loans remain demanding even during the Covid-19 pandemic.  Some business owners have no choice but to put up personal assets as collateral. Furthermore, the challenge of obtaining loans has worsened due to the ongoing Covid-19 pandemic.  

However, new alternatives are rising to fill these funding gaps. In 2016, it was found that around US$245 billion worth of funding reached SMEs through alternative finance platforms. This includes online platforms such as peer-to-business lending. In the past few years, there has been a steady increase in alternative lending use in Southeast Asia, especially India and Vietnam. 

For SMEs, P2P platforms provide an alternative to banking as it allows them to source for funds from willing lenders. Investors can choose which businesses to fund by checking their profiles.

The role of accountants in the growing P2P lending era

Unlike large corporations, small business owners are typically focused on day-to-day operations. They don’t have the luxury of time to compare bank rates or work out the intricacies of satisfying a business credit score. 

Instead, they rely on their accountants for advice on optimising cash flow and doing the “financial footwork” of finding the most suitable financing options. In essence, accountants have taken on the role of advisors to their clients.

As such, it is accountants who can play a key role in connecting their clients to the growing P2P industry—a move that will also help their clients to obtain quicker funding and resolve common cash flow issues.

P2P opportunities and advantages that accountants can highlight for clients

P2P lending helps SMEs many of the typical obstacles in bank lending. 

The first is the business history that banks often demand of SMEs. In many countries, an SME must have been in operation for at least two to three years and satisfy other requirements, such as the ability to maintain a certain level of deposits, in order to obtain a bank loan. 

This poses an inherent problem for SMEs. They most urgently require capital in their early years, and yet this is the period when they are least able to qualify for traditional bank loans. 

P2P platforms provide an alternative around this. They allow investors to provide funds to SMEs online, even if an SME cannot provide the abundant paperwork and lengthy business history required.

Another advantage of P2P financing is the speed at which loans are disbursed. Conventional banks can be slow to process SME loans, particularly if the business is new to them. But SMEs seldom have the luxury of, say, five working days to wait for approval, followed by another week for actual loan disbursement.

With P2P platforms that use technology to simplify and speed up the application process, SMEs will know on the day itself if their loan is approved. The loan can be disbursed as soon as the next working day.

A third advantage is that P2P platforms can provide unsecured loans to SMEs—something that many conventional banks will not even consider. Not many SMEs can afford to commit large sums to a fixed deposit as collateral. They may not be able to use essential operational assets to secure a loan; not when the loss of these assets can mean a total shutdown of the business. Sole proprietors cannot risk using personal assets to secure loans.

As such, P2P loans may be the most painless way for SMEs to get funding, in a manner that doesn’t require collateral.

Additionally, P2P platforms can provide smaller loan amounts than banks do. Many banks are uninterested in offering the smaller loans SMEs may seek, given the administrative effort those loans still entail.

Accountants may find that P2P platforms are better matched to their clients in terms of small loans for paying suppliers and maintaining cash flow in the face of delayed payments.

P2P steps for accountants to provide guidance during the Covid-19 pandemic

The Coronavirus outbreak has negatively impacted and caused many financial problems for SMEs. As Covid-19 continues to attack the economy in various ways, SMEs are struggling to survive, and many owners are being forced to tap on their savings to salvage their businesses. 

Especially in the wake of the Covid-19 pandemic, SMEs may be critically affected and would need the expertise of accountants to lead them through these difficult times. Here are some things accountants should do to help:

  • Check for all financial and other forms of aid provided by the government
  • Identify SMEs that are vulnerable to the economic effects of the pandemic and see if public support measures will be able to tide them through
  • Let your clients know of measures that they can implement to help them survive
  • Come up with a medium-term plan to weigh out the pros and cons of emergency measures, e.g. laying off employees 
  • Tap on your network to get legal advice or other experts that could potentially help your clients in reviewing or saving their business  

If accountants and lending platforms are proficient in their guidance, SMEs will definitely be able to overcome the financial struggles during this pandemic.

Complementing accountants’ core skill set

In effect, an understanding of P2P lending can allow accountants to act as strategic advisors in a manner that complements their core skill set. Accountants are in a good position to analyse how P2P funding fits their client’s needs.

In times of unprecedented Covid-19 pandemic, accountants prove the importance of their role in guiding and advising SMEs through this trying time.

Their strategic input on financing options provides additional value to their clients and makes them significant partners in SMEs’ growth.