I have been following the growth of peer-to-peer lending over the last few years. It has exploded in both the US and the UK and is starting to become more popular here. Linked Finance was the first to start the model in Ireland, but more businesses such as Grid Finance have entered the space.
At this stage, Linked Finance has facilitated 400 loans worth €15m on the platform. It has ambitious plans to lend over €250m to 5,000 businesses. Looking down the list of successful businesses, you recognise many artisan producers who have used it to access credit.
More interestingly, the first dairy farmers have recently been successful at using the platform to raise money for their business. Will there be more? Yes, says Conor McAleese of Linked Finance.
“We are seeing a strong interest from farmers to use the site to raise finance. Just as importantly, farming and other agricultural businesses are an increasingly popular segment on the site and these loans tend to be popular with our lenders.
One reason is that it is easy for lenders to understand the business. When a farmer looks for money to increase stock numbers or put in facilities, it is easy to see the reason and the potential.
“There is also huge potential for farmers and farming groups to co-operate and use the Linked Finance platform as their own funding vehicle. A co-operative group, for example, could agree among its members that when any one of them is looking for finance for a particular project, the other members of their community could come together and support the loan request on Linked Finance at a favourable interest rate,” said Conor.
Linked Finance has always encouraged businesses to get family and friends to support them on linked finance. Once other lenders see bids going in, they will be quicker to put their own money in as well.
“The lending is unsecured but in many cases the directors/owners give a personal guarantee for the money. We have a small number of cases where businesses have failed but not in the agricultural sector.”
Linked Finance has always encouraged lenders to spread their money across business and across sectors. Many small businesses have used the publicity on Linked Finance to get new customers as well as new money. If a lender put money into a company, they are more likely to buy their products to ensure they do well.
Dairy farmers do not have the same benefits and many will not want publicity. As one farmer said: “I had people come up to me asking was I in trouble because I was looking for money from them.” He simply saw it as another option that farmers should look at. Peer-to-peer lending is just another vehicle, especially as farmers are having issues with getting money from banks for whatever reason.
In fact, Linked Finance has recently started co-funding some of the loans with MI. The business has to fit the additional criteria set out by MI who assess all applications for commercial viability. The loans should come at a more competitive interest rate, as MI lends at 8.8%. As discussed elsewhere in this supplement, farmers are eligible to apply to MI.
Over time, the interest rates could reduce on farming loans through the site as more farmers come on the site and repay the loans over time. The biggest benefit is that while the interest rate is high and fixed for the period, there is no penalty for paying it off early. Therefore it will be the first loans that many will repay when they have cash to do so.
Tommy Relihan
Tommy Relihan has used Linked Finance in the past to raise €25,000 to help grow his food brand Adare Farm in Co Limerick. It was difficult to get bank finance for the pig-on-spit/catering and ice cream business at the time and the money was a huge boost. It was raised at 10.18% and he is halfway through paying it back each month.
He went back to Linked Finance with his father Ned to get finance for their dairy herd to increase from 150 to 170 cows. Having gone through the process before. he found it easier the second time around.
“We were negotiating with our bank at the time and did not have an option to get additional unsecured finance,” said Tommy. They raised €34,750 with an average interest rate of 12.4%. It was slightly higher than the last loan. “Our aim is to pay the loan back as soon as possible and re-enter into negotiations with our bank.”
Jim and Theresa Luttrell
Dairy farmers Jim and Theresa Luttrell turned to Linked Finance out of frustration with their bank. “We had purchased land 10 years ago and never missed a repayment. Yet when we went to borrow money to install a secondhand 14-unit milking parlour they messed us around, leaving us weeks before saying no,” said Jim.
With cows number increasing to 70 this year, he needed to upgrade the old six-unit parlour. “My son James helped me with the paperwork. They required bank records, farm accounts and our profit monitor. He looked for €25,000 and was 221% oversubscribed with 395 bids.”
The Luttrells supply Callan co-op. In 2014, Jim was awarded the co-op’s title of Milk Producer of the Year, represented the region nationally, finishing in the top 12 in the National Dairy Awards. Having this award definitely helped to get investors to put in money.
The average loan rate was a bit higher than I would like at 11.26% but within two weeks I had the money and was able to start the job,” said Jim. I repay the money back monthly over 36 months. I would have preferred a longer term, but it was the best option I had to make sure I got the money in time to have the parlour ready for this year,” said Jim.
What is peer-to-peer lending?
The model is based around individuals lending money to a company, project or consumer in return for repayment of the loan and interest on their investment. With deposit rates at record lows, it is matching business with people who have money sitting in deposit accounts. They want a bigger return but of course there is a bigger risk.
The risk is that the loan is unsecured and of the business fails the lender will lose his money.
For Linked Finance, the lender is charged 0.1% a month administration fees, but only on the funds that are lent out, so this reduces as capital is paid back. Businesses are charged a 2.5% fee on the money they actually successfully borrow.
“We see peer-to-peer lending as becoming a mainstream way for business to access an alternative method of funding and for lenders to get a higher return. In other countries, peer-to-peer lending gets tax relief for lenders.”
The Central Bank came out last year to alert consumers that crowdfunding, including peer-to-peer lending, is not a regulated activity in Ireland. They said that while any investment, even through a regulated firm, carries with it an element of risk, there are specific risks to consider when any consumers consider participation in crowdfunding.
Farmers are starting to look to peer-to-peer lending.More companies are offering a platform.Interest rates vary around 9-12%.Less paperwork than banks.Lenders need to understand that loans are unsecured.How companies are vetted is key to reduce risk.Set to increase in years ahead.More info: www.linkedfinance.ie and www.grid.finance.Grid Finance has a number of agribusinesses but no farmers have accessed money on their platform so far.
“This is about to change. We have a number of applications already in from farmers and they will be up on the site in the near future,” Andrea Linehan, head of sales and marketing at Grid Finance told me.
“It is a sector that we feel investors want to invest in so there will be money there,” she added. At the Alternative Finance for Agribusiness conference last November, it was mentioned that Grid Finance was starting to move into the bank space offering secured lending for larger amounts.
“We currently are successfully offering unsecured loans from €3,000 to €75,000 at anywhere from three to 36 months terms,” said Andrea.
The average interest rate of these loans has been 8.5%. This year they are moving to offer secured loans for the first time. These are secured on a fixed or floating change basis. The amount of these loans will be €75,000 to €150,000. However, next year they will increase this up to €250,000 to €500,000. Unless they are in a limited company, farmers who apply are treated as sole traders.
The information Grid Finance looks for includes their Irish Credit Bureau rating, six-month bank statements, financial accounts and management accounts. The farming loans coming through the site are mostly for livestock, equipment and working capital.
To read the full Agri Finance Focus Supplement click here.
I have been following the growth of peer-to-peer lending over the last few years. It has exploded in both the US and the UK and is starting to become more popular here. Linked Finance was the first to start the model in Ireland, but more businesses such as Grid Finance have entered the space.
At this stage, Linked Finance has facilitated 400 loans worth €15m on the platform. It has ambitious plans to lend over €250m to 5,000 businesses. Looking down the list of successful businesses, you recognise many artisan producers who have used it to access credit.
More interestingly, the first dairy farmers have recently been successful at using the platform to raise money for their business. Will there be more? Yes, says Conor McAleese of Linked Finance.
“We are seeing a strong interest from farmers to use the site to raise finance. Just as importantly, farming and other agricultural businesses are an increasingly popular segment on the site and these loans tend to be popular with our lenders.
One reason is that it is easy for lenders to understand the business. When a farmer looks for money to increase stock numbers or put in facilities, it is easy to see the reason and the potential.
“There is also huge potential for farmers and farming groups to co-operate and use the Linked Finance platform as their own funding vehicle. A co-operative group, for example, could agree among its members that when any one of them is looking for finance for a particular project, the other members of their community could come together and support the loan request on Linked Finance at a favourable interest rate,” said Conor.
Linked Finance has always encouraged businesses to get family and friends to support them on linked finance. Once other lenders see bids going in, they will be quicker to put their own money in as well.
“The lending is unsecured but in many cases the directors/owners give a personal guarantee for the money. We have a small number of cases where businesses have failed but not in the agricultural sector.”
Linked Finance has always encouraged lenders to spread their money across business and across sectors. Many small businesses have used the publicity on Linked Finance to get new customers as well as new money. If a lender put money into a company, they are more likely to buy their products to ensure they do well.
Dairy farmers do not have the same benefits and many will not want publicity. As one farmer said: “I had people come up to me asking was I in trouble because I was looking for money from them.” He simply saw it as another option that farmers should look at. Peer-to-peer lending is just another vehicle, especially as farmers are having issues with getting money from banks for whatever reason.
In fact, Linked Finance has recently started co-funding some of the loans with MI. The business has to fit the additional criteria set out by MI who assess all applications for commercial viability. The loans should come at a more competitive interest rate, as MI lends at 8.8%. As discussed elsewhere in this supplement, farmers are eligible to apply to MI.
Over time, the interest rates could reduce on farming loans through the site as more farmers come on the site and repay the loans over time. The biggest benefit is that while the interest rate is high and fixed for the period, there is no penalty for paying it off early. Therefore it will be the first loans that many will repay when they have cash to do so.
Tommy Relihan
Tommy Relihan has used Linked Finance in the past to raise €25,000 to help grow his food brand Adare Farm in Co Limerick. It was difficult to get bank finance for the pig-on-spit/catering and ice cream business at the time and the money was a huge boost. It was raised at 10.18% and he is halfway through paying it back each month.
He went back to Linked Finance with his father Ned to get finance for their dairy herd to increase from 150 to 170 cows. Having gone through the process before. he found it easier the second time around.
“We were negotiating with our bank at the time and did not have an option to get additional unsecured finance,” said Tommy. They raised €34,750 with an average interest rate of 12.4%. It was slightly higher than the last loan. “Our aim is to pay the loan back as soon as possible and re-enter into negotiations with our bank.”
Jim and Theresa Luttrell
Dairy farmers Jim and Theresa Luttrell turned to Linked Finance out of frustration with their bank. “We had purchased land 10 years ago and never missed a repayment. Yet when we went to borrow money to install a secondhand 14-unit milking parlour they messed us around, leaving us weeks before saying no,” said Jim.
With cows number increasing to 70 this year, he needed to upgrade the old six-unit parlour. “My son James helped me with the paperwork. They required bank records, farm accounts and our profit monitor. He looked for €25,000 and was 221% oversubscribed with 395 bids.”
The Luttrells supply Callan co-op. In 2014, Jim was awarded the co-op’s title of Milk Producer of the Year, represented the region nationally, finishing in the top 12 in the National Dairy Awards. Having this award definitely helped to get investors to put in money.
The average loan rate was a bit higher than I would like at 11.26% but within two weeks I had the money and was able to start the job,” said Jim. I repay the money back monthly over 36 months. I would have preferred a longer term, but it was the best option I had to make sure I got the money in time to have the parlour ready for this year,” said Jim.
What is peer-to-peer lending?
The model is based around individuals lending money to a company, project or consumer in return for repayment of the loan and interest on their investment. With deposit rates at record lows, it is matching business with people who have money sitting in deposit accounts. They want a bigger return but of course there is a bigger risk.
The risk is that the loan is unsecured and of the business fails the lender will lose his money.
For Linked Finance, the lender is charged 0.1% a month administration fees, but only on the funds that are lent out, so this reduces as capital is paid back. Businesses are charged a 2.5% fee on the money they actually successfully borrow.
“We see peer-to-peer lending as becoming a mainstream way for business to access an alternative method of funding and for lenders to get a higher return. In other countries, peer-to-peer lending gets tax relief for lenders.”
The Central Bank came out last year to alert consumers that crowdfunding, including peer-to-peer lending, is not a regulated activity in Ireland. They said that while any investment, even through a regulated firm, carries with it an element of risk, there are specific risks to consider when any consumers consider participation in crowdfunding.
Farmers are starting to look to peer-to-peer lending.More companies are offering a platform.Interest rates vary around 9-12%.Less paperwork than banks.Lenders need to understand that loans are unsecured.How companies are vetted is key to reduce risk.Set to increase in years ahead.More info: www.linkedfinance.ie and www.grid.finance.Grid Finance has a number of agribusinesses but no farmers have accessed money on their platform so far.
“This is about to change. We have a number of applications already in from farmers and they will be up on the site in the near future,” Andrea Linehan, head of sales and marketing at Grid Finance told me.
“It is a sector that we feel investors want to invest in so there will be money there,” she added. At the Alternative Finance for Agribusiness conference last November, it was mentioned that Grid Finance was starting to move into the bank space offering secured lending for larger amounts.
“We currently are successfully offering unsecured loans from €3,000 to €75,000 at anywhere from three to 36 months terms,” said Andrea.
The average interest rate of these loans has been 8.5%. This year they are moving to offer secured loans for the first time. These are secured on a fixed or floating change basis. The amount of these loans will be €75,000 to €150,000. However, next year they will increase this up to €250,000 to €500,000. Unless they are in a limited company, farmers who apply are treated as sole traders.
The information Grid Finance looks for includes their Irish Credit Bureau rating, six-month bank statements, financial accounts and management accounts. The farming loans coming through the site are mostly for livestock, equipment and working capital.
To read the full Agri Finance Focus Supplement click here.
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