Peer to Peer Lending: Right for Your Small Business?

You have launched your startup business, and sales are great – BUT now you need more working capital to buy supplies to manufacture more widgets.

You’ve heard of alternative lending solutions like Peer to Peer lending, also called P2P. You may be wondering if are they right, and safe, for your new company?

Unlike traditional bank loans, which can take seemingly forever to get approved and funded, peer-to-peer lending is a relatively fast and smooth application and funding process.

What is Peer to Peer Lending?

P2P lending is where individuals borrow and lend money to each other with an official bank or financial institution as the coordinator. The individuals who are lenders collect both income and interest payments from the borrowers. These lenders earn money by lending their money out to other people. The borrower interest rates are higher than bank loans because the approval requirements are less stringent. Peer to peer lending is an excellent option for those turned down for business loans elsewhere.

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How does Peer to Peer Lending Work?

You, the small business owner, who is interested in getting a business loan goes online to a lender, such as our recommendation Prosper a highly rated, and our recommended site such as XX and completes a simple loan application online. Then the lenders in the market would consider your companies information and financial health and send you a rate of interest and loan offer to those borrowers they deem qualified. When you are approved your loan will be on the online list where the investors can pick the loans, they will invest into, and your loan proceeds funds are deposited into your bank account.

What Criteria Do P2P Lenders Look for in Business Loan Applications?

Instead of over-focusing on credit scores, as traditional lenders and banks do, peer-to-peer lenders use your data and online technology to access your business as a whole to determine its creditworthiness.

Indeed your credit history plays a vital role in your loan approval, but it is not the only factor. Lenders consider your cash flow, market opportunities, and even your social media Likes.

Before you submit your application check your credit score and improve it as much as possible. Also be prepared to discuss, in person on the telephone sometimes, your experience with credit and lending plus how the loan approval will build your business in the future.

Checklist: Peer to Peer Lending Right for Your Small Business?

Legal in Your State?

Not all US states allow peer-to-peer lending. However, this depends upon which platform, and company, you utilize. 49 States in America allow Lending Club while 47 states are acceptable through Prosper. Ohio and Texas are two states which P2P lending is illegal.

When Do You Need Loan Funds?

Depending upon which P2P company and your particular application the process can be lengthy. That is not always the case; sometimes your loan will be approved and funded within a week. It all depends on many factors such as the completeness of your application, your timely responses to questions and being available for phone calls.

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Credit Score Good Enough?

Is your credit score good enough to both get approved and not be charged additional fees for higher interest rates and origination fees? These additional costs could make money too expensive to capitalize on your business opportunity profitably.

Loans Options – Personal or Business

Peer to peer lending has many loan package options such as personal or business loans. Research and compare APR, loan funding amounts and terms for repayment for your credit score. Most new start-ups will not have the business financials to present for a business loan approval and will want to apply for a personal loan to launch their new business.

Is Peer to Peer Lending Safe?

The US government has enacted laws to safeguard both the lenders and borrowers. Since 2008 the SEC Securities and Exchange Commission has required the peer to peer lending companies to get SEC registration for their loans, which gives federal guidelines and laws for protection. It is legal and safe for both borrowers and lenders and can be a sound investment.

List of Peer to Peer Lending Companies & Sites

Here are some popular P2P lenders: