Setting up a new business or even getting a cash injection for an existing business can be a bit of a nightmare. After all, when you’re running your business, chances are that you don’t have time to look for outside investors. And then there’s the flip side: If you’re an investor looking for a business, that can be extremely time-consuming. That’s the reason many people consider peer-to-peer lending, but very few people have a guide to getting started with it.
As time-consuming as both of the previous are, peer-to-peer lending takes almost as much time. With a guide to getting started with peer-to-peer lending, you can cut out most of that time-consuming process and skip straight to lending or borrowing. First, though, you must consider what exactly peer-to-peer lending actually is and how it works.
What Is Business Peer-to-peer Lending?
Essentially, this is a system of direct loans between a borrower and lender, which usually cuts out the middleman, while also getting rid of the need for a bank or other financial institution. There’s a direct connection between a borrower and a lender, or quite possibly several lenders. This type of funding is normally accomplished through a few different online networks, such as funding circle, lending club & street shares.
Lenders can choose to either invest in business themselves or co-invest with several other investors. If they co-invest, then they reduce their individual risk, but also reduce the amount of shares they get into a business. On the business end, it means getting the cash injection, while also getting help and advice from investors. This help and advice could be as helpful as the financial investment itself because investors want the best return possible on their investment and want you to do well. However, that’s a story for another time.
What’s the Difference Between Peer-to-Peer Lending and Banking Services?
Financial institutions can be great when it comes to getting a small business loan, but that type of loan comes with numerous catches. With peer-to-peer lending, you get to bypass many of these, while also getting the help and advice of investors. While that may be a great benefit, it also comes with a number of drawbacks.
The main one is the fact that you’re giving away part of your business. If you’re going for a loan, however, there’s the fact that many peer-to-peer lenders charge more, sometimes much more, interest than many financial institutions do. High interest can be great for those providing the lending but can be a deal breaker for those doing the borrowing. It may not be a complete deal breaker, but what it is definitely something that borrowers need to think about for a while.
When it comes to a guide to getting started with peer-to-peer lending, every single reliable lender should tell you that you’re bypassing a lot of formalities, but you’ll end up paying for that convenience in the long run. Many online peer-to-peer networks offer that piece of information.
When it comes to getting a guaranteed approval $5000 loan, these two competing factors are definitely something that any business owner should be aware of. However, as we stated, it can be a great thing for potential lenders.
Where Can I Start Peer-to-peer Lending?
There are a vast number of online networks that allow you to start peer-to-peer lending, or borrowing, whichever the case may be. However, some of them as we’ve already mentioned are the main. It can be quite helpful to take help from such networks.
Let’s discuss some of the benefits a business owner is likely to get while using online networks.
• Don’t require a minimum revenue requirement to get funds
• You will find some of the most competitive APR’ in the market
• The minimum requirement to be in a business is one year only
• No market brokers those charges a hefty amount of closing business loan deals
What Are the Risks of Peer-to-peer Lending?
While it has its benefits, peer-to-peer lending for businesses also has some drawbacks and risks, not only for businesses but also lenders. This guide will also be covering possible risks in the peer-to-peer lending market.
There are two significant risks involved with peer-to-peer lending. First, we’ll focus on the networks itself. There’s always the risk that these online lending networks can just disappear or default on its finances. However, this is usually a minimal risk, as the vast majority of big platforms are cash positive, so there’s not much of a need to worry on that front.
However, for the lenders, there’s also the risk of a business defaulting on its loan. Lending money to the small business and startups isn’t the safest thing to do, and the default will always be a risk, especially compared to saving your money in the bank. So, if you’re primarily looking to make money off lending, it’d be best to think clearly about it first and make sure you’re lending to a business that’s already on the road to profitability.
This guide covers most of the basics and risked before getting started in this field. As stated earlier, it can have its benefits, but can also have some massive risks, both for businesses and lenders, so it’s something that must be thought of before considering.