2019 was not an easy year in economic terms for us. Many factories and companies have been closed, which led to the closure of a large number of jobs. The economic slowdown has affected many important sectors. Along with them, the demand for cash loans in Norway and peer-to-peer lending, known as collective lending, has also grown.
Check what reasons led to the expansion of entrepreneurs in our country and how the collective loans has been a valuable alternative for them to prosper.
Economic scenario and the expansion of companies in our country
The explanation for the growth of small entrepreneurs is largely connected to the unemployment that the country faces. In such worrying reality, opening a small business is one of the solutions found by those who are looking for a professional replacement or by those who got tired of depending on the company where they work as an employee.
Despite the increase in entrepreneurship, there are rare cases in which the owner already has funds to put that dream plan into reality. Financial institutions do not help this process as much, as they charge high interest and maintain a very bureaucratic way of acquiring credit. However, today the investor can leverage his business through an innovative type of credit: the collective loan. In addition to being accessible in bureaucratic terms, this option is free of high interest rates.
But, you must be asking yourself: what is a collective loan? Where can I get a trustworthy loan? What is the difference between a loan at the bank and online collective lending platforms?
What is a collective loan?
To explain what a collective loan (peer-to-peer lending) is, it is necessary to explain, also, the operation of traditional loans made mainly through banks, which have dominated an expressive market share for more than 100 years. The bank acts as an intermediary between money and entrepreneur. It uses the money invested by people and lends it to those who need to pay debts or invest in the company itself. When doing this service, the bank charges a higher amount, a rate known as bank spread.
Peer-to-peer lending, in turn, eliminates the bank as an intermediary. In this model, the relationship is more direct and modern between money and entrepreneurs who need a loan. Investors invest their funds in companies that are looking for credit. It is an investment of people in people, in which everyone wins.
This model has many advantages for small business owners who need capital, because with the exclusion of the bank spread, the loan will not weigh in the contractor’s pocket. The practice of collective lending online is only possible thanks to Fintech (financial technology) – companies that bring modernity and technology to the financial world. With them, it was possible to create online platforms that made collective lending a safe and accessible for everyone.
The history of collective lending in worldwide
The collective loan started in Great Britain in 2005, and expanded to the United States in 2006. The immediate success is related to the approximation of the parties, through the exclusion of the intermediaries (banks). At the beginning, the collective loan process was seen as an irregular financial intermediation. In the United States and Italy, for example, some platforms had their service interrupted due to a lack of knowledge about the greatness of the peer-to-peer process.
Despite the initial impasses, the collective lending platforms soon managed to prove that they are a valuable alternative for investors and also for entrepreneurs looking for credit to grow. In 2014, the Government of England regularized collective loans because of their importance to society. Regulatory approaches are described in the Financial Conduct Authority 2014 document.
In England, from 2009 until today, more than 9 billion pounds have been loaned. These figures show how fast the collective loan gains popularity. Supporting this new modality is also encouraging the development of local communities, mainly because collective loans facilitate and guarantee the development of small entrepreneurs. Following this global trend, studies predict that by the year 2025 these collective investments may reach 1 trillion dollars worldwide. This is a prediction that must be considered by all parties concerned.
The article was prepared in cooperation with LOCALMARKET.