Ignorance surrounding crowdfunding, combined with huge public aversion to risk, is holding back investment in SMEs, according to research by P2P lender ArchOver.
Aillingness to invest increases significantly however, when such crowdfunded loans are protected by added security.
A key reason for public caution and risk aversion is that 61% of participants save mainly for future security, either for themselves, their children or future home improvements, rather than for luxuries such as a holiday or an expensive car (38%).
Brian Basham, Executive Chairman of ArchOver, says: “Crowdfunding is growing as a source of funds for small business but public ignorance and risk aversion is holding back much potential investment. However, the willingness to invest increases markedly when crowdfunding is understood and with the added comfort that the loans are both secured and insured.”
A key reason for savers’ risk aversion is that savers are investing for their own and their children’s future security. 61% of participants invest for their retirement, their children or future home improvement. This is much higher than the 38% who said their savings were for the luxuries of life, like holidays, cars and boats.
Basham says: “The 2008 recession will soon become a distant memory, but it’s evident that the downturn has made the British public exceedingly risk averse and reluctant to take on higher yielding investments associated with a little more risk. While the majority of people save for their future security and protection, they are looking at very limited options to invest their money. Interest rates on savings accounts are at historic lows, much to the chagrin of informed savers, so it’s remarkable that people aren’t considering wider options.
“P2P lending is gradually becoming a relevant and important asset class. With innovations in FinTech, such as ArchOver’s ‘belt and braces’ secured and insured loans to investors, there is enough room to whet the cautious saver’s appetite for better deals on their investment. The appetite is, of course, obvious by the country’s growing willingness to invest in secure P2P loans. However, there is also a desperate need to educate savers on what crowdfunding has to offer.”
