Peer-to-peer business lending

What is a peer-to-peer business loan?

A peer-to-peer business loan is a type of financing funded by investors instead of one direct lender. P2P business loan providers oversee of the loan’s application process, underwriting and repayment but don’t provide the funds themselves. Instead, investors finance loans in exchange for a portion of your interest.

Marketplace lending is another commonly-used term for peer-to-peer lending, though it’s not entirely accurate. When you apply for a P2P, your application enters a P2P marketplace where one or more investors choose to fund your loan. However, marketplace lending is not restricted to investors. Business loan marketplaces can also include more traditional lenders as well.

Compare peer-to-peer business loans

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Name	Product	Filter Values	Loan amount	APR	Requirements
Funding Circle business loans			$25,000 – $500,000	Starting at 4.99%	620+ personal credit score, 2+ years in business, for-profit business in an approved industry	Check eligibility More Info		loading Fetching your data...
LendingClub business loans			$5,000 – $500,000	12.15% to 29.97%	12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better	With loan terms that vary from 12 to 60 months, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.	Check eligibility More Info		loading Fetching your data...

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How does P2P business lending work?

From the borrower’s perspective, P2P business loans tend to work like any other type of online loan. You fill out a pre-approval application, review your potential rates, apply and then get your funds. Some platforms are designed more like crowdfunding sites and require borrowers to set up a profile and pitch to investors themselves, but those are less common.

To get a P2P loan, you generally must agree to a hard credit check and disclose your business’s financials. The lender usually gives you an APR and a borrower grade, which your lender will determine based on factors like your business’s credit score, your personal credit score and annual revenue. This credit risk score also helps the investors decide whether or not to invest in the loan.

Soon after you apply and are approved, your loan is funded. The actual process will differ between lenders, but usually you will repay the loan directly to the investors with the P2P lender simply facilitating the loan.

5 loan features to consider when comparing P2P business lending

When you’re comparing peer-to-peer lenders to get a loan for your business, various aspects require your attention. These include:

• Interest rate. While the credit risk your business presents plays a vital role in the APR you get, know that not all lenders charge the same rate. If you’re borrowing a considerable sum, even a small difference in APR can have a telling effect on the total interest payable.
• Fees. The interest you pay towards your loan is one cost. You also have to pay attention to the fees, as these can escalate the cost of your loan easily. Most peer-to-peer lenders charge loan origination fees. Some will also charge prepayment fees.
• Loan amount. Peer-to-peer lenders tend to have minimum and maximum limits in place. However, the maximum you can borrow also depends on factors such as the creditworthiness of your business, its debt-to-income ratio as well as prospective growth. Some peer-to-peer lenders let you borrow up to $1,000,000.
• Loan term. Loan terms of 12, 24, 36, 48 and 60 months are common. The amount you wish to borrow can have an effect on the minimum and maximum loan term offered.
• Secured or unsecured. You may or may not have to provide collateral, depending on the lender you choose and the amount you wish to borrow. With larger amounts, there’s a good possibility you’ll have to provide collateral. This can come in the form of cash savings, deposits, home equity, equipment or vehicles.

What are the benefits and drawbacks of P2P business lending?

3 cautions of peer-to-peer business lending to avoid

1. Borrowing more than you can afford to repay. If you think you might have problems repaying the loan in a timely manner, it’s best that you avoid taking a peer-to-peer loan in the first place. Not repaying the loan on time can hurt your business’s credit and can make it more difficult for it to qualify for financing in the future.
2. Applying for multiple loans at once. Multiple hard credit inquiries can hurt your credit score and looks bad to other lenders. While credit unions treat multiple credit pulls as one types of loans as one — mortgages, car loans and student loans in particular — P2P business loans usually don’t fall into this category. If you want to compare rates, you might want to apply for prequalification instead, which doesn’t affect your credit.
3. Not reading your loan documents. Your loan documents should give you a clear picture of your loan’s APR and any other fees and charges you may have to pay. It outlines the terms and conditions of repaying your loan.

Frequently asked questions

• What information do I have to provide to apply?

  Applications generally require copies of recent business tax returns, business bank statements, details of existing loans, a detailed balance sheet and all relevant business and personal information.

• Will my loan have one or more investors?

  This depends on your requirement as well as probable investors. While investors sometimes try to spread their money to limit their losses, you may end up finding a single investor interested in funding your loan.

• How often do I have to make repayments?

  As with other kinds of loans, you typically have to make monthly repayments.