Business Financing

Working Capital Management

P2P Lending for Small Business: Risks and Rewards

It seems the only thing you need to start a company today is an idea; everything else can be sourced. Information, human capital, and financing are all widely available, even compared to a decade ago, largely thanks to our vastly improved information channels.

Financing options for small businesses have traditionally been limited to the bank, family and friends. Fortunately, today there are alternative financing solutions available. Crowdfunding, P2P lending, invoice financing, marketplace lending, and more.

P2P lending is one of the most misunderstood forms of alternative financing, with only a few great educational articles available online on this topic. If you’d like to find out more about this innovative type of financing, read on. We’ll outline the risks and rewards to help you, as an entrepreneur, decide whether peer-to-peer lending is the right choice for your business.

The Basics of Peer-to-Peer Lending

What is P2P lending? In short, P2P lending allows individuals and businesses to connect to investors without the need for a bank.

This has several implications for the relationship between lenders and borrowers. Bypassing the middle man often means that you get your loan at a lower interest rate. It also makes it possible for you to secure a loan, independent of your credit score. Investors can be more flexible than banks.

Lending platforms and partner banks are still involved in the process, so if you’d like to understand the entire process from beginning to end, you can find a nice visual model of the loan acquisition and repayment journey here. If you can’t secure a bank loan P2P loans are a great alternative to consider.

P2P Loans Provide Easier Requirements

Securing a P2P business loan is much easier than having to jump through hoops and loops to get a bank loan. P2P loan approval focuses on your personal credit as a borrower much less than a bank would.

The great news it that investors are are always welcoming new borrowers. The playing field is wide open for all businesses which decide to take advantage of this financial resource.

Resolving Hesitation Due to P2P Payback Terms

It’s also important to know that despite the shorter payback periods, Canada’s top 3 largest peer-to-peer lending platforms have processed over $100 million in loan applications as of May 2015. This seeming drawback isn’t stopping businesses from using P2P loans actively. In fact, the success of P2P lending has become a cause of concern for major national banks.

Is P2P Lending Right for You?

There are a number of financing options for your business such as crowdfunding, angel investors, traditional bank loans, borrowing from friends and family, venture capital, etc.

Now that you’re familiar with both the benefits and the potential risks of P2P lending, you might be wondering whether this is the right funding channel for your business.

You can start by asking yourself with these questions:

  • Can I postpone financing and still continue successful operations?
  • Do I have collateral for a loan?
  • Can I afford to risk my property for my business?
  • Is my credit score excellent?
  • Do I have family or friends to borrow money from?
  • Do I have a personal reserve I can tap into?

If you answered “no” to any of these questions, it’s likely that a P2P loan is your best financing option. If you need a secure, fast loan to support your business growth and banks loans won’t work, you’re in the perfect position to take advantage of small business loans through the P2P lending system.

If you still have doubts about whether this is the most appropriate funding channel for your business, check out how P2P lending can jumpstart your business.

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