Peer-to-peer lending networks that provide loans for small businesses are becoming one of the more popular options that business owners are using outside of traditional borrowing plans in order to gain access to funds that can be helpful for a variety of purposes within their company, as there may be options for these businesses to acquire financing for debt repayment or simply as a way to begin a startup, when traditional small business loans from the bank are not available.
There have been numerous peer-to-peer lending networks that have been created where business owners or individual men and women can post why they need a loan and, if someone wishes to offer them financing, people have found that they can gain funds for almost any financial endeavor. A report on these lending websites from ChicagoTribune.com stated that, “A peer to peer loan may be a good option if you don’t have many sources for borrowing…you can get loans in amounts of between $1,000 and $35,000, depending on the site.”
Yet, there are some individuals who warn businesses about acquiring these loans without proper research as many feel that lenders have now become more like investors and are honestly looking for a high return on their peer-to-peer loan. An article on NewYorkTimes.com made mention that the SEC has seen many of these endeavors as investing due to the fact that there are numerous men and women who may contribute a sizable amount to a small business or simply a general borrower and, as a result, they can profit from their loan as interest rates may vary, but again this is still seen as income and investment in a company.
However, for businesses who are having difficulty acquiring capital from a traditional bank, these peer-to-peer lending networks have been helpful as there are some men and women who simply can offer funding that a bank may be denying a borrower, but individuals who use peer-to-peer lending networks must be cautious of interest rates as well. Yet, one of the reasons that borrowers have used these networks to acquire small business funding is to either consolidate or pay off more expensive forms of debt.
A peer-to-peer loan can be less expensive simply because a private lender could be more willing to offer a low interest rate on the loan if a borrower is in a decent credit position. However, businesses that are considering these options need to understand that many lenders will only look for a business that is in a good credit position and has the ability to repay this loan, so peer-to-peer lending is no guarantee for companies and when it comes to of affordability they could be as costly as a traditional small business loan from a bank.
Yet, they are still helping more companies who are having trouble getting a loan or financing from a traditional bank, but business owners who choose the peer-to-peer small business loan route must make sure they properly review the loan before entering into any type of peer-to-peer lending agreement.