Small business loans through peer to peer (P2P) lending
- May 18, 2016
- 2 min read
Small business loans through peer to peer (P2P) lending are the first stage in the small business funding process because they are relatively easy to get. While rates can be higher than other loans, there are no prepayment penalties and you do not have to sell a portion of your company.
What is peer to peer (P2P) for Small Business Loans?
We’ve covered the concept of peer to peer (P2P) quite a few times here. The idea couldn’t be simpler and is really just traditional banking brought online, connecting investors directly with borrowers. Check out this introduction on peer to peer (P2P) >>>.
Some peer lending platforms offer small business loans as well as personal loans. They offer small business loans up to €200,000 on rates as low as 6% for up to five years. There is an origination fee of 1-5% of the loan and it will take about a week to complete the process.
Why Should You Use Peer to Peer (P2P) Loans?
I wouldn’t recommend using a Peer to Peer (P2P) loan for continuing business funding but it can be a great way to get your company to the next stage. Funding for Peer to Peer (P2P) small business loans take as little as a week, much quicker than a traditional bank loan, and can help you take advantage of quick deals.
Probably the biggest reason to use Peer to Peer (P2P) lending for your small business loan is out of necessity. Banks just aren’t lending to small businesses anymore. New financial regulations make it more expensive to make small business loans than to make larger million-dollar loans, so there’s really no profit incentive to make smaller loans.
There is so much investor demand for Peer to Peer (P2P) lending right now that small business loans are funded quickly. There is no prepayment penalty so take out a three- or five-year loan and pay it off when you can. Avoid the short-term loans of one year or less because they usually charge much higher rates and you’ll pay high refinance fees if you can’t pay it off.
Rates can get prohibitively high for small business loans in the hundreds of thousands so apply for only the minimum amount you need. Of course, your ability to repay the loan will also need to be considered. A €15,000 small business loan at 17% on five-year terms will cost about €375 a month. That’s workable within most budgets but make sure you have enough to pay the loan even if it takes a while for business sales to begin.
I’d love to hear from entrepreneurs that have gotten small business loans through Peer to Peer (P2P) lending. How did the process work for you ? How did you use Peer to Peer (P2P) business loans as part of the small business funding process?
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