Peer To Peer Lending Business Funding
If you are looking for an alternative to a bank loan, peer to peer lending might just be the solution you are looking for. Cutting out the middleman, peer to peer lending puts businesses who want to borrow directly in touch with those who want to lend. This allows you to negotiate the terms of the loan directly and avoid third-party fees. In some cases, this can mean the process is very much faster and simpler.
Peer to peer lending is a well-established form of alternative funding but many people are still not quite sure whether it is suitable for them, how secure the process is or even what the process is. So, with this in mind, let us run through the basics of peer to peer lending so that you have a better idea of what to expect should you choose to apply.
As with all types of business funding, there are various pros and cons to peer to peer lending you’ll need to consider:
Advantages Of Peer To Peer Lending:
- Get hold of your loan faster – even within a few weeks
- Easier process than borrowing from the bank
- Much more accessible than bank loans – less red tape
- Most lenders will not penalise an early repayment of the loan
Disadvantages Of Peer To Peer Lending:
- Interest rates may be higher
- You may be required to pay a fee
- You will need to put down a personal guarantee against the funds you want to borrow which could include personal assets
What is Peer to Peer Lending?
Peer to peer lending is a business loan arranged through a portal or P2P online platform where private investors lend to a business or individual. As many banks are now much more reluctant to lend to businesses, peer to peer lending is becoming a strong alternative. The platforms are now afforded the same protections as other business loans.
Though the concept of peer to peer lending is quite different to a regular bank loan, the application process is much the same. You will still need to be able to provide bank statements and filed accounts as well as answer questions about profits, turnover and trading history. You will also be asked what you intend to do with the borrowed money. The interest on the repayments will completely depend on the lender and could be more or less than the interest rates offered by a bank.
How Does It Work?
Peer to peer lending is essentially managed through an online platform which matches lenders and borrowers. As a business looking for a loan you submit your application and supporting documentation and will then be assigned a ‘risk category’ which determines the interest rate bracket. Then, your loan is considered and hopefully funded by an individual investor (or group of investors) who acts as the lender.
This can turn out to be a good deal for you as a business because you can get a better interest rate than through a traditional bank loan or credit card. But it’s also a good deal for lenders because they earn a higher return than they can through a savings account.
What’s The Process For Acquiring Peer To Peer Lending?
Naturally different P2P platforms work in slightly different ways. Some platforms request that investors bid on particular opportunities and others simply set the interest rate and risk category and wait for the lenders to choose. In all cases though, you will be required to submit your accounts and financial records to show your business’s financial position, including any current debts. Whichever platform you choose, you will more than likely have your money within a few weeks as opposed to the months you would wait with the bank.
Peer To Peer Lending – FAQs
Any business looking for an extra injection of funds can apply for peer to peer lending. It is particularly appealing to businesses struggling to get a bank loan but you will need at least 2 years of trading records.
The interest rates for peer to peer loans can vary quite widely and may be decided by the platform or by the lenders themselves. The interest rate you are offered is usually calculated by your risk profile as well as how long you require to pay the money back. This means that you should look around carefully to get the right deal for you.
The two are often confused: peer to peer lending is where you borrow from an investor or group of investors through an online platform; crowdfunding takes many different forms:
Equity crowdfunding – Sale of a stake in a business to a number of investors in return for investment. Similar to how stock is bought or sold on the stock exchange.
Rewards-based crowdfunding – Individuals donate to a business or project with the expectation of receiving a non-financial reward in return, such as goods or services, at a later date in exchange of their contribution.
Donation-based crowdfunding – Individuals donate a small amount to meet the larger funding aim of a specific charitable project and will receive no financial or material return.
Profit-sharing / revenue-sharing – Businesses can share future profits or revenues with the crowd in return for funding now.
Debt-securities crowdfunding – Individuals invest in a debt security issued by the company, such as a bond.
Hybrid crowdfunding models offer businesses the opportunity to combine elements of more than one crowdfunding type.
This largely depends on the platform you use. Some loans are arranged free, others come with a fee.
Peer to peer lending is now an established part of the finance industry. It is regulated by the Financial Conduct Authority. This means that there are no grey areas and everyone involved is protected by rights.
Peer To Peer Lending For Ambitious Businesses
Whether you are an ambitious business looking to grow or an established business seeking expansion– peer to peer lending is a viable option.
For more information and advice of peer to peer lending and other types of funding available for your business, give one of our friendly team a call today on 0800 047 2389 or fill out a contact form and we’ll get back to you.