UK peer-to-peer (P2P) lender Fruitful is challenging the nation’s high street banks by offering retail customers a current interest rate of 6 percent. It’s also promising 5 percent above the Bank of England base rate at all times, and which stands at 0.5 percent at the time of press.
Regulated by securities watchdog the Financial Conduct Authority (FCA), the alternative lender has launched a product which will connect savers’ money directly with commercial mortgage borrowers. Businesses looking to secure a mortgage in an “increasingly restrictive market” can access debt financing from Fruitful, according to a statement.
The Liverpool-based firm aims to mitigate the risk of loan losses by conducting asset-backed lending, collateralised with real estate. Luke Barnes, chief executive, said: “One of Fruitful’s most compelling benefits is the elevated protection by securing savers’ funds against mortgaged properties. This significantly reduces the potential risks of P2P saving.”
The peer to peer lending model, which has emerged in the wake of the financial crisis to fill a perceived gap left by traditional banking, is marketed on the premise that it can reward savers with higher rates and borrowers with lower rates, than many high street banks. This is attributed to the costs saved with the banking middle-man cut out. However although regulated since April 2014, returns as well as capital are not guaranteed unlike normal UK savings where the first £85,000 per person per financial institution is guaranteed by the government-backed Financial Services Compensation Scheme.
Shane Tibbits, director of lending at Fruitful and former head of national accounts for the Bank of Ireland Group, said: “Fruitful’s financial proposition for both savers and business borrowers provides an excellent alternative to high street banks. Once we launch our tax-free ISAs we will see further demand for Fruitful products. For business borrowers, Fruitful will become a welcome alternative in the commercial mortgage sector at a time when business is finding access to commercial loans a challenge.”
The 25-year-old Barnes was the most successful crowdfunder in 2013 on Crowdcube, one of the world’s largest investment crowdfunding platforms, the firm said. The Fruitful campaign raised £140,000 for 8 percent equity in two days. Separately it has received a private investment of £380,000, the firm told Crowdfund Insider.