The advantages of a peer-to-peer business loan

Getting a loan for your business is a difficult process in any economic climate. However, with banks being ever more cautious about who they lend to it is even harder to secure a commercial loan. Peer to peer lending, which is completely independent of the banking system, has distinct advantages which should be considered. Funding Circle, which is the largest peer to peer lender for commercial loans, operates similarly to an online auction. Bids, in the form of contributions to a requested loan amount, are made over a clearly defined period. At the end of this period the bids offering the lowest rates of interest are accepted automatically. So, if more than the requested amount for the loan is offered in total then the offers made at the highest rates of interest will be automatically rejected by the website, making the loan cheaper for the borrower. This results in multiple investors lending to one borrower. This spreads the risk and means that investors need not have huge amounts of capital to contribute to these loans and therefore earn better rates of interest than banks would offer. The other major advantages to this method of financing include:

• The low rates of interest. Although rates of interest will be higher for businesses with poorer credit ratings, these rates are still often below 10% and are cheaper than the rates many banks are offering at the moment.

• Unsecured finance is also available up to £100,000. Honestly, how many banks can do that?

• There is a great deal of flexibility in the size and length of the loan. Loans can range from £5000 to £500,000 and from 1 to 5 years.

• It is a relatively quick process. The online auction takes between 1 and 2 weeks and a few days of admin occur before and after the auction.

• There are no fees applicable if you want to pay back your loan early, which stands in stark contrast to loans from banks.

• A borrowing business can remain anonymous if they wish to do so. This can have disadvantages in terms of the rates of interest offered by lenders but it is down to the borrower's discretion whether to reveal their identity or not.

• The loans are exclusively from private citizens rather than banks, making this a more personal rather than corporate process. Investors can even discuss the loan with borrowers via email, meaning both parties can feel more secure about where the money is coming from and going to.

Rigorous credit checks are carried out on borrowers to ensure, as much as possible, that they will be reliable in repaying their loan. Commercial peer to peer loans offer businesses and investors of any size a way of improving their situation to their mutual benefit. No banks, very little red tape and a good rate of interest for both parties; no wonder peer to peer loans are becoming more and more popular. To find out more or to apply, see our Commercial Loan enquiry form or call us on 0845 1260350