Alternative Financing: Peer-to-peer Lending

Alternative Financing: Peer-to-peer Lending

Many small business owners find it challenging to obtain financing from banks or other traditional lending institutions. Peer-to-peer (P2P) lending is an alternative financing option changing the process of borrowing money by allowing businesses to pitch to an online audience of potential lenders.

Peer-to-peer Loan Process

In Peer-to-peer lending, small business owners complete an online application that factors in your credit score and debt-to-income ratio to determine your interest rate. Qualified small business owners receive a list of unsecured personal loan options to select from.

Small Business Benefits

Peer-to-peer loans typically offer credit at a lower rate, get the money faster often in a few days, and are less risky for lenders. Peer-to-peer lending offers fixed monthly payments, flexible terms, and no prepayment penalties, and no hidden fees.

Lender Benefits

Peer-to-peer lending benefits lenders who typically see a better return on investment in a growing billion dollar industry. Lenders are putting their money into one large loan they invest in a percentage of multiple loans. Peer-to-peer lending offers lenders a diversified portfolio with monthly cash flow. Lending standards have become more regulated since the Securities and Exchange Commission (SEC) required websites like LendingClub.com and Prosper.com to register as securities in 2008.

Peer-to-peer lending is a new way of small business financing that is still being evaluated. It’s not available in all states and the rules and terms are changing constantly. It could be a great resource for new and existing small business owners and offers a viable alternative to traditional banks.

This post was originally posted on SCORE, a nonprofit association dedicated to helping small businesses get off the ground, grow and achieve their goals through education and mentorship.

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