– Peer-to-Peer Lending –
Peer-to-Peer (P2P) Lending Platform: Imagine a platform set up for the right lending conditions, going against all forms of the traditional protocol. A platform that allows you to borrow money from investors, rather than a bank. All this is made possible with the peer-to-peer lending platform(P2P).
Peer-to-peer lending (P2P) is a type of business loan where a large number of private investors lend to a business. It is usually done through an online platform. The idea is that both the lenders and the borrowers get a better rate than they would through the banks.
Below are all you need to know about the Peer-to-Peer Business Lending platform before going ahead to apply;
About Peer-to-Peer (P2P) Lending Platform
It’s the practice of lending money to individuals or businesses through online services that match lenders with borrowers. Most peer-to-peer lending companies often offer their services online.
Therefore, it attempts to operate with lower overhead and provide its services more cheaply than traditional financial institutions.
As a result, lenders can earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates, even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower.
Peer-to-peer lenders underwrite borrowers but don’t fund the loans directly. Instead, they’re an intermediary between the borrower and the individual investor or an institutional investor such as a hedge fund or investment bank.
Peer-to-peer lending offers several advantages to small business owners, including the following:
- Fast applications that are easy to complete online
- Quick turnaround time for approval
- Timely funding of new loan applications
- Competitive interest rates for well-qualified small business applicants
- Borrowers remain anonymous to the investors backing the loans
- Reapplying for new financing is easy so long as payments are made on time and in full
- May offer options for small business owners with less than ideal credit
- A transparent process from start to finish
Although there are clear benefits to peer-to-peer lending, drawbacks do exist. Small business owners need to be aware of the following downsides of P2P loans before applying or accepting funding:
- A personal guarantee may be required for small business owners with less than perfect credit or minimal business assets.
- Borrowers may pay higher interest rates than conventional bank or credit union small business loans
- Missing payments have a negative impact on the small business owner’s credit history
- Automatic payments may be required for approval of a small business loan
Best Peer-to-Peer Business Loans
There are several lenders now offering peer-to-peer lending for small business owners, so each with different interest rates and costs, repayment terms, and business qualification requirements. A few options include the following.
Rates (APR): 9.00% – 40.00%
Loan Terms: 3 – 36 months
Loan Amounts: Up to $250,000
StreetShares is a newer addition to the P2P business lending marketplace, and it was developed with a focus on veteran small business owners. The online lender provides a simple application process through its online platform, as well as the following features to small business owners:
- No personal minimum credit score requirement
- Maximum loan amount of $250,000
- Interest rates ranging from 9.00% up to 40.00%
- Funding time for new loans from one to five business days
Rates (APR): 4.99% – 22.99%
Loan Terms: 6 – 60 months
Loan Amounts: $25,000 – $500,000
Funding Circle is another P2P online lender providing small business loans to qualified companies. The lender also has a streamlined application process submitted through its online platform, alongside the following features:
- No minimum annual revenue requirement
- Loan amounts ranging from $25,000 up to $500,000
- Interest rates ranging from 4.99% to 22.99%
- Repayment terms of 6 – 60 months
- Funding turnaround time from one to two weeks
Rates (APR): 10.00% – 35.50%
Loan Terms: 6 – 60 months
Loan Amounts: $5,000 – $300,000
LendingClub is a leading peer-to-peer lender offering small business loans to qualified companies throughout the United States. The P2P lender makes the application process easy, as it is all completed online, and it offers fast approvals for companies that meet the eligibility requirements. Some of the key features of LendingClub include:
- Minimum annual revenue from the business of $50,000
- Loans ranging from $5,000 up to $300,000
- Interest rates ranging from 10.00% to 35.50%
- Repayment terms from 6 – 60 months
- Funding in as few as two business days
How Peer-to-Peer Lending Platform Works
From the borrower’s perspective, P2P business loans tend to work like any other type of online loan. You fill out a pre-approval application, review your potential rates, apply and then get your funds.
Some platforms are designed more like crowdfunding sites and require borrowers to set up a profile and pitch to investors themselves, but those are less common.
To get a P2P loan, you must agree to a hard credit check and disclose your business’s financials. The lender usually gives you an APR and a borrower grade, which your lender will determine based on factors like your business’s credit score, your personal credit score, and annual revenue.
This credit risk score also helps the investors decide whether or not to invest in the loan. Soon after you apply and are approved, your loan is funded.
The actual process will differ between lenders, but usually, you will repay the loan directly to the investors with the P2P lender simply facilitating the loan.
With a peer-to-peer small business loan, small businesses must meet the specific eligibility criteria laid out by the lending platform they select.
In some cases, this means having a minimum number of years in business, most often at least one year, and minimum annual revenue requirements.
The smallest minimum annual revenue number across the most popular P2P lenders is $25,000.
Secondly, small businesses may also be required to provide a personal guarantee for the loan, meaning they are taking personal responsibility to repay the balance, even though it may be taken out in the name of the business.
Small business owners are also required to provide details about the financial strength of the business with P2P loan applications. These details may include a balance sheet, debts owed to other creditors, and the cash flow of the business.
The information required differs for each peer-to-peer lending platform, but all accept these details through their online system.
The application process for P2P lending is made simple for small business owners, as it is completed online instead of in-person or over the phone.
Small business owners submit their request for a loan, including the amount needed and the purpose for the funding, and then these details are passed along to investors on the platform.
Once an investor selects to fund a loan application, the lending platform informs the small business owner that the loan has been funded.
There are some cases where the lender asks for follow-up information about the business financials. However, once approved, funding of the loan takes place in just a few days.
Finally, peer-to-peer lending has changed the game for small businesses seeking financing solutions for a variety of business needs.
Small business owners have access to more funding through a network of investors that they would not otherwise have access to. The application and approval process is as simple as it gets.
Small business owners also have faster access to financing when they need it most and a variety of repayment terms to fit their needs.
We hope this article has been helpful to you. Please share it with anyone you think will appreciate the information and kindly drop your comment below.