Funding Business Basics: Peer To Peer Funding ….
What It Is And How It Can Help You Start Or Expand A Business
If you want to start or expand a business but lack the ready cash then peer to peer funding could be the solution. Here’s what peer to peer funding is, and what you need to know about it.
What is peer to peer funding? Peer to peer or P2P is a way you can borrow money direct from people with money to lend. It’s not the same as borrowing from a bank …. the important point to note is that you’re usually borrowing from the person or business who has the money to lend rather than from a bank.
Why is it popular? P2P has become popular due to the reluctance of most banks to lend to small businesses at the moment. Yet at the same time there are lots of people with funds to invest and looking for a return on it. P2P funding is a way of bringing borrower and lender together without relying on a bank.
P2P lenders will often consider things banks won’t and it usually costs less than borrowing from other sources too.
How much can you raise? Anything from a few hundred pounds to hundreds of thousands. P2P funding is very common for amounts in the £5,000 to £20,000 range. (Bear in mind how much you can borrow depends on how much you can afford to repay!)
What is it for? You can get P2P funding for almost anything. It all depends on what the lender is willing to lend for. Here are some things it can be used for: Business start up costs. Franchise costs. Helping to buy an existing business. Helping to buy/invest in property. Buying vehicles, machines or even tools. Marketing expenses. To meet the cost of employing staff.
Do you need security? It depends on how much you’re borrowing and what you want to borrow for. Lots of P2P lending, especially for smaller amounts, is unsecured. For larger amounts you might be asked to put up property or shares in your business as security.
How to do it? P2P funding used to be difficult to organise but now there are a number of websites which can help organise this kind of finance or put you in touch with a lender. Some sites invite lenders to bid to offer the best terms. They usually charge both parties a fee or commission for arranging things.
In most cases you’ll need to write a business plan or pitch to show potential lenders.
Here are some contacts you can try:
Zopa at uk.zopa.com. Encash/Yes Secure at www.yes-secure.com. Funding Circle at www.fundingcircle.com – this one focuses exclusively on lending/borrowing for businesses.
What else do you need to check? Before agreeing to any kind of P2P finance check exactly what you’re committing to. Such as: The interest rate payable. The repayment term. The monthly repayment. Any other fees payable. What happens if for some reason you can’t repay.
If in doubt about whether P2P funding is right for you ask the advice of a solicitor and/or accountant first.