Peer-To-Peer Finance: What Is It and Will It Suit Your Business?

Have you thought about financing your company? At some point, whether you’re a start-up or a growing business, it’s likely that you’ve given the matter some thought.

If so, you’ve probably considered the more traditional forms of raising funds, such as bank loans, credit cards, and asking relatives for financial assistance.

However, surprisingly few business owners are aware of the variety of other options available. Peer-to-peer lending is a type of financing that is becoming increasingly popular, and for good reason.

Unfamiliar with the concept? Here’s a brief explanation.

What is Peer-To-Peer Financing?

In its most basic terms, peer-to-peer lending (P2PL) removes any form of financial institution from the equation. So, rather than visiting the bank for a loan, you could essentially borrow money from anyone, in return for repayment plus interest.

This could include a local businessman, your neighbour, even your father-in-law. If it’s an established agreement, with terms and conditions and a specific repayment plan, then it’s officially classified as peer-to-peer lending.

Of course, when seeking financial help, it’s common to search on the internet. There are three large online peer-to-peer companies operating in the UK: Zopa, RateSetter and Funding Circle.

Between them, they issued over £700 million of loans in 2014, and are predicted to lend over £1bn by the end of 2015. As you can see, it’s a booming industry, and a great way of seeking finance for your business.

What Are the Benefits?

There are some significant benefits to peer-to-peer lending, which explains why it’s becoming increasingly popular. These include:

  • Cheaper costs. Not only will peer-to-peer lenders often charge less interest than the banks, but there are generally fewer fees involved. Often, when you borrow from a financial institution, you’ll end up paying application and processing fees. This doesn’t apply when you’re dealing directly with an individual lender.

  • Quicker process.If you need access to funds in a hurry, peer-to-peer lending is a great way of achieving this. In some instances, you might be able to access the money on the same day that you complete the application.

  • Easier to get approved. If you’re having trouble getting approved for lending at the bank, peer-to-peer lending may help. Although lenders will still have the same scepticism for someone with a poor credit history, they may be more willing to consider your request than a bank.

Is Peer-to-Peer Lending Right for Your Business?

As with any form of financing, it’s important to assess whether or not it’s a good match for your specific needs. Peer-to-peer lending is an effective way of generating finances quickly, not to mention reducing the amount of interest paid. However, it’s important to note that:

  • You may be refused. Despite the fact that it’s generally easier to secure a loan from P2P lending, if your lender believes you’ll struggle to pay the money back, your request may be rejected.

  • Interest rates may be higher.If your credit history is good, you’re likely to be offered better rates of interest than the bank. However, if you’ve got a poor credit history, the rates might actually be higher. Make sure you can afford them before accepting any offers.

  • Pressure on your cash flow.Repayment periods are generally fairly short (between 3 and 5 years). If your business isn’t making sufficient sales by then, you might find it difficult to make the repayments.

How to Find Out More

If you want to learn more about peer-to-peer lending, and other forms of finance and investment for your business, reserve your tickets for the Business Funding Show today , then come along and meet our peer-to-peer experts.

Eventbrite - The Business Funding Show 2016