Peer-to-peer (P2P) lending

Q: Pros and cons of peer-to-peer lending

More accessible route of funding – if you find that with a low credit score, you may be shut out of ‘traditional’ financing options. If financial institutions won’t lend at competitive rates, P2P might be an option. Lower rates – due to P2P having lower overhead costs or origination fees, you may find the interest rate to be more competitive.

Quick facts

Amount

From $5,000 to $15m

Term

1-5 years

Cost

From 6% interest typically (comparable to other unsecured loans) plus fee of approx. 1% of loan

Speed

From 48 hours

Purpose of finance

Expand, take on new employees or simply cover day-to-day expenses

Suitable for

Any business with a trading history

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What is peer-to-peer lending?

Peer-to-peer lending (P2P) is a type of business loan by a large number of private investors (individuals, businesses or institutions) provided to your business, usually through an online platform. The idea is that lenders and borrowers get a better rate than they would through banks – plus decision lead times are significantly shorter. P2P is also known as debt crowdfunding or loan-based lending. Peer to peer lending matches those with money to lend with those who want to borrow, removing financial institutions from the equation and allowing lender and borrower to share on the saved over-head costs of borrowing/lending.

The process is quick and easy.

A potential borrower completes an application form online to register interest.
The peer network receives application, assess the risk profile and assigns a credit rating. This is usually a soft credit search which does not negatively impact on your credit score.
When the application is accepted, the peer network send across different options from proposed lenders with varying rates.
You asses which is the best for your business and choose accordingly.

Why choose peer-to-peer lending?

Peer-to-peer lending (P2P) is different to standard business loans. P2P matches private investors looking to invest their money with people who want to borrow it. In theory, compared to banks, P2P pays higher interest to lenders and charges lower rates for borrowers. The stronger your business profile, the lower the interest rate on your loan.

You apply for the loan directly to the P2P provider, even though technically you’re not actually borrowing the money from them but from a collection of private investors (individuals, businesses or institutions) who have signed up via a P2P lending company. On some platforms, these investors can choose the businesses they lend to. On other sites their money is automatically divided between a number of borrowers.

Pros and cons of peer-to-peer lending

More accessible route of funding – if you find that with a low credit score, you may be shut out of ‘traditional’ financing options. If financial institutions won’t lend at competitive rates, P2P might be an option.
Lower rates – due to P2P having lower overhead costs or origination fees, you may find the interest rate to be more competitive.

Is it suitable for an SME?

Usually peer-to-peer lending platforms offer unsecured business loans. This means you don’t need any security and you can set up your loan quickly. P2P is one of the more accessible forms of alternative finance.

An initial quote will not have an effect on credit score so it pays to shop around to look for the best rate.

Your business may benefit from competitive, fast and easily processed (48 hours) P2P loan. Borrow from £5,000 to £15m. The term length is usually from 1-5 years. The rates offered are from 6% typically (comparable to other unsecured loans) plus fee of approximately 1% of loan.

Have you also considered?

You might also want to consider debt crowdfunding – more commonly known as peer-to-peer-lending (P2P) – or other types of equity finance such as angel investors (business angels).