When researching ways to finance your business, you’ll probably come across peer-to-peer (P2P) lending. In recent years, it’s become an increasingly common financing solution for entrepreneurs and small business owners. Like all financing methods, though, there are advantages as well as disadvantages associated with it. To determine whether it’s the right choice for your business, keep reading.
Pros and Cons of Peer-to-Peer (P2P) Lending
What Is P2P Lending?
P2P lending is a financing method that involves the use of an online service to borrow money from a pool of lenders. In other words, the online service acts as the middleman between a business owner and lenders. Rather than contacting a lender directly to request a loan, you can use a P2P lending service. The service provider will match you with a pool of lenders so that you can get the capital needed to start and fund your business. It’s important to note that most P2P lending services involve investors rather than banks.
P2P Lending Pros
P2P lending offers several advantages, one of which is a lower cost. With P2P lending, there are no physical bank branches or other brick-and-mortar locations. And without the presence of these physical locations, you can save money when applying for a loan through P2P lending.
The requirements for P2P lending are also lower than that of traditional financing methods, including bank loans. Even if you’ve been denied a loan from a bank, you may still get approved for a P2P loan.
P2P lending is also incredibly easy. Most business owners will agree that it’s easier to obtain financing through P2P lending than a bank or other conventional methods. Just head over to the P2P lending service’s website, at which point you can complete an application.
P2P Lending Cons
There are still some potential disadvantages associated with P2P lending. For starters, P2P lending is primarily designed for small businesses. Most P2P loans range from just $5,000 to $50,000. If you need than $50,000 to start your business, you may want to seek an alternative form of financing.
Loans obtained through P2P lending typically carry higher interest rates than conventional loans. As a result, you may end up paying more for a P2P loan in the long run, especially if you have bad credit or no credit.
In Conclusion
As you can see, P2P lending has its own unique advantages and disadvantages. It’s fast and easy way to obtain capital, but it’s not always sufficient for medium- and large-sized businesses. If you need a substantial amount of capital to start your business, you may want to consider a different form of financing.
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