Social Lending: the easy and secure financing platform, how it works and what are the advantages

Thanks to fintech, and the innovative drive that this sector has triggered even within traditional financial players, businesses can now count on a wide choice of tools for accessing credit at a time when it is sorely needed. Alongside, or instead of, traditional methods such as bank loans, European, national or regional funding, there are also alternative channels that have become increasingly fundamental for a business system that is beginning to grasp their value and effectiveness. Social lending is just one of the forms of financing that are is available to SMEs in need of liquidity.

Social Lending: what it is

Also known as lending crowdfunding or P2P lending, this channel for accessing credit, which is strictly online like many of those offered by the fintech sector, puts a person or company looking for money in contact with potential investors, who may be citizens, companies or institutions, willing to lend money. The social lending platform acts as an intermediary between these two parties, bringing their interests together. On the one hand, it puts them in contact with each other and, on the other, it also takes on the burden of checking that the person requesting money has guarantees and can repay the loan and also  the duty of verifying  the identity of the lenders to ensure that everything is in order.

If you think about it, his form of financing, is not very innovative from a certain point of view because people have always lent money to each other without too many procedures and without the help of the web. With social lending platforms, however, it is possible to extend this logic of lending between individuals by allowing it to be carried out even between people or companies that do not know each other. This is why the rules need to be clear. They are in fact  dictated imposed by the Bank of Italy, which defines this channel of access to credit in the following terms: “An instrument through which a plurality of subjects can request, via online platforms, repayable funds from a plurality of potential lenders for personal use or to finance a project”.

Social lending: how it works

Today in Italy there are numerous social lending platforms that can be divided into two main categories, those focused on business loans and those dedicated to personal loans. Let’s see how it works in the case of businesses, although we are aware that the mechanisms are quite similar. When an SME wants to apply for a loan it turns to the online platform.

How lending crowdfunding works

The person or company that needs a cash loan, in order to carry out a personal or business project, requests it on the online platform. Here they can “meet” the lenders investing their savings by lending them at lower interest rates than those offered by banks.

The procedure is quick and easy for applicants: they connect to the social lending site and enter the data required to carry out an assessment. This first checks the company meets the requirements which may depend on the platform they apply to. They usually concern creditworthiness, for example, but may also place constraints on the registered office or turnover. As far as the amount of financing required is concerned, it ranges from a few tens of thousands of euros to a few million euros. The duration of the financing is not fixed and depends on the platform; it can be a few months or even several years.

Once this initial screening has been completed, a more in-depth analysis of the request begins, followed by a final offer which, if accepted, forms the basis of the financing contract. At this point, the business project to be supported is put online and the referrer will receive the money on his or her current account according to the agreed instalment plan.

Costs are charged, not related to the early stages of assessment, from the social lending platform, which must be sustainable, costs are charged that do not relate to the early stages of assessment, but generally take the form of opening fees at the same time as the loan is disbursed and management fees, charged on a monthly basis. Having understood the mechanism behind social lending, we can briefly look at it from the point of view of the lenders. After an initial profiling, the lender can either act in person or choose to have the platform manage the investments, and only receive the repayment, including the capital and interest, from the lender.

The advantages of social lending

The main advantage linked to P2P lending is certainly the responsiveness of this tool which, in record time, allows a company or an individual to raise significant amounts of capital. The procedures, all conveniently online, are simple and fast while ensuring maximum security, and this means a lot to a company that is close to a liquidity crisis or is in a hurry to start its business. You can get the money you need in a few days or sometimes even in a few hours, and without being penalized by a higher interest rate. On the contrary, it is almost always lower than that of banks or other traditional instruments.
There are advantages for lenders as well, of course, otherwise the system would not stand. Those who decide to invest on social lending platforms can do so directly online in full autonomy and without too many papers to sign or analyze, all while enjoying a higher ROI (Return of Investment) than traditional forms of investment.

Instant lending for SMEs: digital, easy and more democratic

If we talk about speed of funding and lending, we cannot ignore what is proving to be a significant and appreciated trend, instant lending. This tool has been expressly designed for small and medium-sized enterprises that typically pay the price of slow, complex and bureaucratic credit processes. Totally digital, the formula of instant lending allows them to access a loan through a web platform, without resorting to paperwork, without collateral/personal guarantees, with the certainty of getting a response on the credit assessment in just ten minutes and the credit disbursed in a few days.
Fabrick has recently collaborated with Banca Progetto and the fintech Faire in the realization of a new model of instant loan disbursement, thanks to which it will be possible to develop an innovative, instant and democratic Instant Lending service. Today this project has the form of an app in beta phase, “Cream”, able to provide users with instant loans via mobile aggregating the information contained in the various current accounts then used to calculate the credit score and allow the bank to provide the requested loan in a short time. A distinctive feature of this proposal is the credit score mechanism used to quickly assess the financial reliability of those requesting a loan, which is no longer based on parameters such as age, origin and territoriality, but focuses attention on habits and categories of expenditure and especially on the trend of ratios between income and expenditure.