Peer-to-peer (P2P) lending offers an alternative form of financing for businesses. Not to be confused with crowdfunding, it involves the use of an intermediary platform that connects businesses in need of capital with lenders looking to loan out money. Rather than getting a loan from a bank, you may want to use P2P lending. There are several things you need to know about P2P lending, however, to determine if it’s right for your business.
5 Things You Need to Know About P2P Lending
P2P lending is a form of debt financing in which businesses borrow money from investors on a P2P lending platform. Some of these P2P loans are unsecured, whereas others are secured. Unsecured P2P loans aren’t backed by collateral. They pose a greater risk for investors, but they are easier for businesses to obtain. Secured P2P loans are backed by collateral. You’ll have to pledge assets as collateral to obtain a secured P2P loan.
#2) Typically Performed Online
Most P2P lending platforms operate exclusively online. They don’t have local offices or branches. Rather, P2P lending platforms are websites that connect businesses and lenders. Businesses visit P2P lending platforms so that they can find investors. Investors visit P2P lending platforms so that they can find businesses in which to invest.
#3) Repayments Managed Through the P2P Lending Platform
Like all loans, P2P loans must be repaid — almost always with interest. Rather than making payments directly to the lender, though, you’ll typically make them through the P2P lending platform. The P2P lending platform will facilitate repayments. As you make payments through the P2P lending platform, the principle amount of the P2P loan will decrease.
#4) Competitive Interest Rate
Why should you choose P2P lending over a traditional bank loan? One of the benefits of P2P lending is competitive interest rates. Both banks and P2P lending platforms charge interest on loans. With that said, many P2P lending platforms offer highly competitive interest rates, especially if you have good credit.
#5) Minimal Communications With Investors
P2P lending involves minimal communications with investors. In many cases, investors can bring more to the table than just money; they can offer advice, tools, resources and network connections to help your business grow and succeed. But with P2P lending, you’ll have limited communications with investors.
This article was brought to you by Intrepid Private Capital Group, a Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.