A peer-to-peer lending organisation called Squirrl is to promote its services to hundreds of UK-based independent financial advisors, highlighting how this non-bank funding channel is being driven by the search for alternatives to traditional bank finance.

The firm claims to be the first “peer funder” to set up formal links with IFAs, it said in a statement yesterday. The IFAs work with the firm Matrix, which is an association of over 700 advisors, accountants and other professional services organisations.

The peer-to-peer funding model, which removes banks as the middleman, enables savers to invest in secure loans to well-established firms. According to one definition, this form of funding is a “method of debt financing that enables individuals to borrow and lend money - without the use of an official financial institution as an intermediary.” This funding model typically involves more time, effort and risk than more conventional sources of lending.

The development of such financing comes at a time when traditional bank lending to firms has been squeezed by the tougher economic climate; to fill this gap, groups such as angel investors and managers of investment funds of various types have stepped in with a variety of financing structures.

“This is a significant moment for both Squirrl and the wider sector,” said Sophie Coles, director of business development at Squirrl.

“From next month [September] professional intermediaries will be able to act as account managers for their clients who wish to invest through Squirrl.com. This in turn will provide significant cash investment to enable further suppliers to make use of the Squirrl.com website in their search for funding.”

After registering as an account manager on the Squirrl.com website, financial advisors can create individual client accounts. Clients can, via their advisor, choose the level of risk and the amount they want to invest. Squirrl.com then bids automatically on listed investment portfolios that match a client’s specific requirements. Financial advisors do not take money on behalf of clients. Instead, investors transfer funds from their bank accounts directly to Squirrel.com. Investors pay no charges – instead, the firm pays a commission directly to a financial advisor. (Because Squirrl sits outside the anti-commission changes coming into place with the UK’s Retail Distribution Review reforms, this means that IFA's will still be able to draw remuneration in this fashion.)

Unlike other peer-to-business lending sites, individuals do not invest directly in individuals or businesses seeking start-up or development capital. Instead, through Squirrl.com, they lend to established suppliers and the money is linked to leasing agreements.

"What Squirrl is doing represents an exciting business opportunity for our members and their clients," said Matrix CEO Paul Weller.  

“It’s important to recognise that peer funding is unregulated but obviously Squirrl’s model of securing savers’ money against asset portfolios is significant in mitigating overall risk,” he said. “Although peer funding is in its infancy, it’s a sector that’s growing in popularity due to a combination of technology, the poor rates offered to savers by high street banks and a continued mistrust of the high street banks,” he continued.