If you need financial assistance to grow your business, you have several options to consider. You can take a loan from any of your family members, financial institution, banks, turn to your savings, or speak to venture capitalists. There is also an alternative to these traditional options that is peer-to-peer lending. It is becoming a popular option among businesses to secure quick funds for business expansion or take projects to the next level. Although it is becoming more commonplace for small and medium businesses to take loans still it is not well known as it should be. According to research, only 44% of UK business owners have heard about p2p lending.
Let’s see what peer to peer lending is and how small and medium enterprises (SMEs) can use it as a funding option.
What Is P2p Lending?
Peer to peer lending, also known as p2p lending, is a great alternative to conventional bank loans for SMEs to borrow money and expand their business.
We can say that this type of lending removes banks from the middle, and borrowers can directly lend money from the investors. The process of lending money takes place through online p2p platforms. These platforms set the interest rates and manage all the processes, from finding the right loan for you to transferring funds in your bank account. You only need to register yourself as a borrower on a platform and provide the necessary information, and the platform will do the rest of the hard work for you.
Advantages Of P2p Loans For SMEs
P2p loans offer several benefits to the borrowers. Following are the benefits that it offers to small and medium enterprises:
Understand Your Needs
Peer-to-peer lending operates very differently from conventional financial institutions. You may find it challenging to get a loan from banks if you have a small or start-up business. You have to go to different financial institutions or banks so that you can secure a loan. However, in p2p lending, you only have to provide your requirements on a p2p platform, and thousands of lenders can view your application. As soon as you meet the lending criteria of a lender, you will get a loan proposal. If you have a good credit score, there are chances of getting more loan proposals.
Quick Arrangement
There are situations when SMEs face cash flow problems and need urgent funds to overcome such shortfalls in cash. We all know that the process of getting loans from traditional methods is tedious and long. You have to complete hefty paperwork and then wait for weeks or even months to get approval. In contrast, you can get quick access to funds with p2p lending. Once your loan profile is approved, you will get the funds within a matter of days. Usually, it takes two working days to transfer funds to your bank account. Even the process of credit check and background verification is fast and easy compared to traditional bank loans.
No Need Of Collateral
SMEs usually struggle in providing collateral for a loan. It is one of the reasons that banks reject loan applications of small businesses. Most traditional financial institutions offer secured business loans, and businesses have to use a valuable asset or property as a security against a loan. It is a condition that most SMEs can not fulfil and find it challenging to secure a loan. On the other hand, p2p platforms offer unsecured loans to SMEs to get a loan and fulfil their financial needs even if you do not have a valuable asset to use as security. Furthermore, unlike crowdfunding, you do not need to give away equity to get a business loan.
Better Deals
Peer to peer loans for SMEs do not have any hidden charges, and they are more transparent than traditional business loans. When taking loans from banks, SMEs find unpleasant terms after signing the contract, and they may end up paying high borrowing costs. With p2p loans, you avoid hidden fees and get lower interest rates compared to traditional business loans. It means you can get the best deals on the p2p platform and save some of your money.
P2p platforms also offer significant benefits to the investors, such as they can get high returns and also not need to pay high operating costs.
How P2p Loans Support SMEs Growth?
Getting access to funds is a critical issue for small and medium businesses. Almost 3 out of 5 SMEs face cash flow struggles at some point, and it is one reason that companies fail. P2p business loans act as an ideal solution and help SMEs by providing affordable and accessible funding opportunities. Furthermore, with p2p lending, you can place applications online and can secure a loan within days. Thus, we can say that peer to peer lending is helping SMEs in taking their business to the next level.
