Small Business Financing with Peer-to-Peer Lending

Peer-to-peer lending is a type of lending that can be used for small business financing and takes place between two individuals. Many people use this type of lending as a way to get the money that they need in order to start a new business. When trying to obtain financing, peer-to-peer lending is an option that is often overlooked. Here are a few things to consider about using peer-to-peer lending for small business financing.

Peer-to-Peer Lending

Many times, people will pursue this option because they cannot get approved with a traditional lender. Traditional lenders tend to be very strict when it comes to approving a new business loan. If you do not have a successful business history, a good credit score or the necessary collateral, a lender will generally not want to work with you. This may not be the case with peer-to-peer lending. With peer-to-peer lending, you can work with a large network of individual lenders who each have different lending standards. Because of this, it can be easier to get approved for a loan of some type.

How It Works

The majority of peer-to-peer lending is facilitated through peer-to-peer lending websites. These websites make it possible for individuals who want to lend money and individuals who need to borrow money to get together. The sites simply work as a conduit to bring the two parties together. With many peer-to-peer lending sites, you can sign up as someone who needs to borrow money. You can then submit a loan proposal to the website. The website will also pull a copy of your credit report and provide a summary to the lenders that are bidding on your proposal. None of your identifying information will be used to give to the lender.

The website will then advertise this to all of the lenders that are available. Lenders will then be able to bid on your project. The bidding will start out at a high interest rate and bidders will take turns bidding lower. Once a bidder is established, the lending website will take the money from the lender and transfer it to the borrower. Every month, the borrower will have a certain amount of money deducted from their bank account in order to make the payment back to the lender.

Entrepreneurs

Many entrepreneurs turn to this form of financing because it is more conducive to financing small businesses. The terms of the loan are more flexible and the approval process is easier. Many entrepreneurs find that applying for a loan at a traditional lending institution is more stressful and cumbersome.

Interest Rates

If you are considering using peer-to-peer lending for small business financing purposes, you should be aware that the interest rates will generally be a little bit higher than what you could get from a traditional lender. Therefore, if you can get approved with a regular lender, it may be in your best interest. The rate that you pay in the long run with a traditional lender can help you save money.

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