Business Loans and Peer-to-Peer Options
by Danny Brown on April 17th, 2008
One of the most difficult parts of any small business is to have the funding you need. Whether it’s start up costs or the need for new equipment, the cost can often be more than you can afford. One way around this is to take out a business loan - yet what happens if you don’t have the relevant credit, or your business hasn’t been trading long enough to qualify? This is where peer-to-peer business loans come into the equation.
Working much the same way that a more traditional business loan works, the big difference with a peer-to-peer loan is that it’s funded by private individuals, which can include friends and family, and managed by larger companies. These include Prosper, Virgin Money, Lending Club, Zopa and GlobeFunder amongst others. The business owner gets the loan they need, and it’s carried out like a normal business transaction, with all the relevant protection and repayment options.
While it’s not quite as prevalent as a traditional business loan yet, the amount of business owners and entrepreneurs now using the peer-to-peer option is growing considerably. For example, both Virgin Money and Lending Club provide a peer-to-peer business loan to as much as 20% of their overall borrowers. The same goes for Prosper, with the average peer-to-peer loan sitting at between $9,000 to $21,000.
The reason for the increase in the amount of business owners looking to the peer-to-peer business loan option is that the more traditional lenders are tightening their belts. Due to poor stock markets and higher defaulters, banks and financial institutes are turning down borrowers whose credit is good, since the risk factor is too great. Without the peer-to-peer option, this would result in many more businesses falling by the wayside, which would simply add to the low confidence in the business markets.
Another reason for the increase in peer-to-peer loans is that it allows people who may not have a business “head” to become involved in a business they’re interested in. Although not a partner as such, a lender of a peer-to-peer loan feels like they are contributing to that business’s success, and this leads to more opportunities for borrowers to find the money they need.
If you’re considering a peer-to-peer loan for your business, or even if you’re considering becoming a lender yourself at a later date, make sure that you carry out a few simple checks, to ensure that you don’t end up out-of-pocket later on. These checks include asking for references or credential checks from interested parties. You should also check the company out at the Better Business Bureau, which can advise of any complaints raised about the company in question. Even a simple search engine check will bring up any negative news about any peer-to-peer lender, and will potentially save your business thousands.
