The basics of peer-to-peer lending: How to raise funds for your business
Access to funding is a vital part of running and growing a small business. Whether you need capital to cover your daily cashflow, hire staff or invest in property, additional finance helps you fund your operations and push your business strategy forward.
But traditional bank finance is increasingly hard to access, so many small businesses are turning to alternative finance tools like peer-to-peer lending.
What is peer-to-peer lending?
Peer-to-peer (P2P) lending is an online arrangement that connects businesses seeking capital directly with private and institutional investors. It’s an alternative to the traditional bank loan.
Rather than jumping through multiple hoops to access a business loan, you can bypass the banks completely. Instead, platforms like Loanpad, Marketlend or Squirrel connect you with investors who can supply the required capital.
The difference between peer-to-peer lending and other funding types
Unlike traditional business bank loans, P2P lending operates entirely via digital platforms. You don’t borrow directly from the bank or finance provider. Rather, you borrow from the pooled funds supplied by individual investors.
Equity crowdfunding allows investors to receive shares in your business in return for injecting equity (money) into your business. But P2P lending is strictly debt-based – you retain full ownership of your business and don’t give up any shares. P2P platforms does however pool funds from multiple individual investors rather than relying on a single institution.
Peer-to-peer lending is one option among many routes to finance for your business.
P2P offers:
Faster access to capital: Online platforms use automated underwriting to approve and disburse funds far quicker than traditional bank applications.
Competitive interest rates: Lower platform operating overheads often translate to attractive rates, especially for low-risk, creditworthy small businesses.
Retain equity and control: This kind of debt funding gets you the capital you need without giving up business ownership or decision-making power.
As your accountant, we cannot advise you on specific funding products and borrowing choices.
But we can connect you with specialist financial advisers and brokers to get the best possible objective advice on your funding decisions.