Much has been written on the financial crisis, and particularly on the access of small businesses to credit. The banks' reluctance to lend to small business has been well documented; probably enough to finance a medium sized paper business. Less perhaps has been written about cash-generative SMEs and what options they have to invest their deposits.

 As with the consumer world, in the rush to point fingers at those at fault, and discover who has been worst hit, those most often forgotten are the prudent and the modest, those who have successfully grown revenues and capital over time.

In the consumer world, these are the Savers. They have been some of the hardest hit by the downturn as their

savings struggle to keep up with inflation. Whether savings have been tied up in Pensions, Shares, or Savings accounts, one way or another, returns have plummeted, causing misery for

many Savers. There are some options at least - ISAs offer a tax-free income opportunity for limited terms and amounts. SMEs have few such luxuries. Where does a Finance Director hold cash deposits in a world of low interest rates and high inflation? Put risk into the business by holding more stock? Leave deposits in the bank to underperform inflating prices and wages?

One option is the rising power of Peer-to-Peer Finance, a largely online sector that has flourished in the last 12

months.

A chasm has developed between the rates that banks will lend at and the interest they will pay Depositors.

Into this void, P2P has found its niche, undercutting both ends of the market.

At RateSetter we have an increasing number of small businesses approaching us, keen to earn inflation-beating returns with monthly access to their deposits. Like consumers, their faith in the banking

system has been rocked, and an approach that gives them more control of their funds has many attractions. Because

RateSetter holds its own capital, insulating Depositors from the perils of Bad Debt, we're perhaps more attractive to

businesses looking to hit specific targets. Like any emerging sector, P2P Finance has its naysayers. As with most things that are considered to be ‘innovative', there is a welcoming enthusiasm for the idea, together with an instinctive mistrust of the models and processes that underpin it.

The truth though is that P2P represents a revolution not an evolution: a return to the oldest form of direct savings and

loan banking. The sector has a way to go to establish itself as a genuine alternative to the banking system. But as the model withstands the test of time, there is a growing awareness,

from business and consumers alike, that P2P Finance has a big part to play.

Rhydian Lewis
CEO, Ratesetter

For more information go to www.ratesetter.com