Brief Analysis of Peer-to-Peer Business Lending in US

Brief Analysis of Peer-to-Peer Business Lending in US
Brief Analysis of Peer-to-Peer Business Lending in US
June 1, 2016

The windows of opportunities for small businesses to get loans have broadened with the advent of the internet, unlike what was obtainable in the years past. Before now, the only source of funding for small businesses has always been grants from family or friends or they queue up, hoping that the banks smiles on them.

Possible sources of loans for small businesses

There are various means by which small businesses can obtain loans and that includes banks, online market place, p2p, angel investors and grant. Each of these sources of funding has their pros and cons likewise their peculiarity. Hence it would be most helpful to have a look at them individually.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

Bank loans are secure

Bank loans are an age long practice of money lending. Till date, it is the most secure form of lending. However, not everyone is eligible to get a bank loan and for those who are eligible, it may take awfully long time for the processing to be complete.

Online market place is a modern source

This is a relatively new form of lending. There are online market place that connects both lenders and borrowers. Here what would possibly stand you out of the pack is a well written proposal and business plan.

Angel investors may be a blessing

They are called angel in the sense that once they like your business plan and see some light in it, they will gladly stake their money in it. However, the problem with this is that it seizes to be your business but rather collaboration.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

Grants is a good support

Grants usually come in form of aids by the government or bigger organization as a way of supporting small businesses. Grants are not repayable, that is, you are not expected to pay it back. However, grants are very rare to find and when they are available, too many hands are competing for them.

Peer-to-peer should be the steer

A website, funding circle, allows small businesses to get funds directly from individuals in the UK. The good thing about funding circle is that they raised $65 million in venture capital less than a year after the last round of thirty-seven million dollars. One of the great edge funding circle has over bank loans is that funds get approval in a few days.

Prospects of funding circle in the US

US citizens can now key into the dividends of funding circle after the company expanded into the US after merging with the Endurance Lending Network, which is US based back then in 2013. Because of regulatory ambiguity in the US to such structures, the sector has been dominated by Lending Club and Prosper, two multi-billion dollar market sources that keeps growing at unprecedented rate.

Read also: What You Never Knew about the Small Business Administration Loans

These too companies have enjoyed a relatively low competition over the years making the sector a lucrative business for p2p investors. Because of regulatory hurdles funding circle has to cross, it is currently available to accredited investors although in the long term, they wish to make it available to non-accredited investors too.

It is without doubt that the p2p business is a world of opportunity. The competition is gradually building and currently, there are more than thirty p2p in the business lending platform with no clear leader at sight. This would surely be a great relief to small businesses.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • There are many ways for small businesses to source for loans now.
  • Bank loans take a long processing time.
  • Grants are not repayable.
  • When grants are available, there is usually too much competition for them.
  • Grants are usually in the form of government intervention.
  • P2p allows lenders to directly fund small businesses.
  • Funding circle expanded to the US by merging with Endurance Lending Network.
  • When investors fund your business, you lose some claim to the business.
  • Lending Club and Prosper were the two p2p lending business in the US.
  • The competition in the p2p lending space has increased because of its lucrative nature.

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