Financial Innovation Management: Loan Price in the Crowdfunding and Peer-To-Peer Lending Platforms

Abstract

As an alternative to traditional bank financing, companies (especially small and medium-sized) can opt for loans from innovative financial facilities: peer-to-peer lending and crowdfunding platforms. When using these alternative financing opportunities, it is very important to identify the main factors of the business loan interest rate and properly assess the overall cost of borrowing. This paper summarizes the scientific discussion on the issue of innovative business funding sources and one of the most important ratios referred to reasonably compare the price of financing sources and the related expenses. Therefore, the main purpose of this research is to identify the internal and external factors of interest rate on business loans and determine the overall total annual rate of charge for business loans on innovative financing platforms. After the analysis of academic literature and statistical data of crowdfunding and peer-to-peer lending market, the authors used the methods of correlation-regression and factor analysis to identify the factors that determine the interest rate of business loans on crowdfunding and peer-to-peer platforms; and scenario analysis to evaluate the total annual rate of charge for business loans. According to the results of correlation-regression and factor analysis, the summarized factors of business loan interest rate are economic environment, competitive environment, and results of the platform performance. External factors appeared to have a much greater impact on the interest rate for business loans in crowdfunding and peer-to-peer lending platforms than internal. The assessment of the total annual rate of charge for business loans confirmed that the peer-to-peer and crowdfunding platforms offer a lower rate than traditional financing institutions, on the other hand, the total rate at the crowdfunding platforms is higher compared to peer-to-peer lending platforms, due to the higher administrative fees and interest rates. The outcomes of this research expanded the scope of research on the sector of financial innovation. The research revealed the peculiarities of crowdfunding and peer-to-peer lending, the factors that affect a loan interest rate, and the real price that business owners have to pay for borrowed funds. Obtained results could be relevant to both lending platforms and businesses seeking to identify and compare the real cost of traditional and alternative financing. Keywords: financial innovation, alternative financing, financial technologies, factors of interest rate, price of borrowing, the total annual rate of charge for business loans.