Peer-to-Peer Business Loans FAQs
What are peer to peer business loans?
Peer to peer business loans usually involve a number of small investments offered by individual investors that add up to the total amount a business is looking to borrow. Instead of borrowing all the money from a single lender, finance will be made available through a collection of lenders who will put forward the money. This arrangement can help to reduce risk and increase returns for lenders and improve interest rates for borrowers, under some circumstances.
How are peer to peer business loans arranged?
These loans are usually arranged through online platforms that specialise in providing this kind of alternative financing for businesses. They work in different ways, including auction-style systems or arrangements where interested lenders can view the business applying for loans and simply select how much they would like to invest. The online platform usually doesn’t lend any money to businesses itself; it just arranges the loan on behalf of the parties involved.
How do I apply for a peer to peer business loan?
Applying for a peer to peer business loan is a very similar process to applying for a regular business loan. You will need to provide some information about your business, including its financial records, address, trading history, profits and turnover. The peer to peer platform will most likely carry out credit checks on yourself, other directors and on the business itself.
Is peer to peer lending the same as crowd funding?
Although these two new financing options are often confused, they can be quite different. Fundamentally, through peer to peer lending, you will access a loan, which you will need to pay back at some point. Crowd funding on the other hand usually involves a collection of individuals who donate to a project in exchange for a percentage of the profits, a gift or nothing at all. The money is not expected to be repaid in most cases.
Are peer to peer loans secured or unsecured?
Loans through peer to peer lenders are usually unsecured, which means you do not have to put security forward in the form of property or equipment, for example, when you take out the loan. You cannot therefore lose ownership of your house if you struggle to meet your repayment responsibilities. If you miss payments, however, you may still see your credit rating suffer.
In what circumstances might I want to consider taking out a peer to peer business loan?
Peer to peer lending, along with other forms of alternative business financing, is becoming extremely popular as a way to access funding without having to approach the big banks. Plenty of people like the idea of accessing finance easily through an online platform and having visibility over how the loan is arranged as well as the cost of the loan. Other borrowers might have a poor credit rating and may find it easier to find financing through alternative financial providers, such as peer to peer lending platforms, than through the high street banks.
However, as with any business loan, it’s important to do your homework and compare peer to peer business loans to ensure you find a deal that is affordable and carries the right terms for your requirements.