Not all that long ago, businesses would have to approach to their bank for a loan or overdraft when they needed funding to grow or a boost of capital to keep the cash flowing. Now they have a number of viable alternatives to the traditional lenders, one of which is Peer to Peer lending – or P2P for short.
Peer to Peer business lending is one of a number of options now open to businesses looking to raise finance. P2P lending can provide a direct alternative to a bank loan and, according to data published by the P2P Finance Association, over 35,000 UK businesses currently have this type of loan.
How Peer to Peer lending works
Investors will generally lend an amount of money which forms a small part of an individual loan. Loans are made via an online system which makes it easy for lenders to invest in multiple loans. The amounts available to borrowers range from a few thousand up to several million pounds.
Businesses seeking funding via P2P lending platforms must make an online application and satisfy the qualifying criteria. Borrowers will usually need a to demonstrate a track record of trading and submit financial accounts.
Interest rates on Peer to Peer loans may be higher than finance from the bank but P2P has the edge when it comes to speedy decision-making.
If you have concerns about approaching a lender that does not have a bricks and mortar presence on the high street, there are safeguards and guidelines in place. The Financial Conduct Authority (FCA) regulates the Peer to Peer market. Additionally, P2P loans can be held in a new type of Individual Savings Account – the Innovative Finance ISA. This may make P2P even more attractive to lenders in the future.
You can find more information on P2P lending and links to lenders on the Peer to Peer Finance Association website.