What is peer-to-peer (P2P) business lending?

Understanding the peer-to-peer lending process

Peer-to-peer (P2P) business lending is a form of alternative funding that’s regulated in the UK and is known for its flexibility and ease of access. Applications are processed on online platforms where businesses are matched with suitable investors.

The total loan is made up of smaller amounts from multiple individuals rather than a single financier providing the entire loan. P2P investors lend money rather than purchasing equity in your company, their aim typically being to receive a higher return on their investment than that available through the banks and building societies.

How does P2P lending work?

Peer-to-peer business finance is facilitated via P2P lending companies that operate online platforms. In your application, you’ll need to state how much you want to borrow, for how long, and the purpose of the loan.

Details about your business and relevant financial information are also required to support an application, similar to that required by ‘traditional’ lenders – such as your turnover, cash flow, and profit levels.

The P2P platform matches you with a group of suitable lenders based on their investment profile and each interested investor lends a sum towards your target amount. Once the target is reached, you receive the funds.

One of the benefits of peer-to-peer finance is that, as the lending process is administered online, you can typically access the funds for your business relatively quickly.

What types of P2P lending are available?

Loans may be secured or unsecured depending on your company’s asset ownership and cash flow. A secured peer-to-peer loan requires an asset to be put forward as collateral and can offer better terms including a lower interest rate that keeps your monthly payments down.

Alternatively, you may prefer to apply for an unsecured P2P loan if you can support your application with a strong trading history and evidence of healthy cash flow. It’s important to note, however, that you may be required to provide a personal guarantee in some instances to reduce the risks associated with lending.

What are the advantages and disadvantages of peer-to-peer business lending?

Advantages

• Range of loan amounts and lending platforms available
• Quickly accessible finance option
• Straightforward application and borrowing process
• No loss of business equity
• Accessible to companies with lower credit scores

Disadvantages

• Arrangement fee to secure a loan and potentially a fee for early repayment
• A personal guarantee may be required for an unsecured loan, which places your personal funds at risk
• Interest rates may be higher than a ‘standard’ bank loan in some cases

Is a peer-to-peer loan right for your business?

P2P loans can be a good funding option for smaller businesses and start-ups due to the more relaxed eligibility criteria when compared with some other types of funding. Regardless of the size or stage of your business, however, peer-to-peer is a flexible way to finance your business and fast to access.

UK Business Finance can provide more information on peer-to-peer business lending that’s directly tailored to your company. We’re highly experienced business finance brokers and will ensure that it’s the best type of funding for your company and its needs. Please get in touch with one of the team to find out more.