Peer-to-peer Business Loans

Peer-to-Peer (P2P) business loans are loans made between individuals as oppose to being made between a lender such as a commercial bank and a business. These loans are handled on a personal level and allow for the individuals involved in the loan transaction to dispense with some of the formality inherent to a loan. There are networks that exist to help match individual borrowers with others that provide a peer-to-peer solution for a business’s funding needs.

P2P Business Loans as a Borrowing Alternative

P2P business loans are an alternative to traditional business loans made between commercial lenders and business owners. These private business loans provide a way out for some borrowers who may not qualify for other forms of lending due to their business type, experience or credit rating. Because these loans are made on an individual basis, a P2P business loan can help a business owner arrange the necessary group individuals interested in providing some or all of the amount necessary for the business and its purposes.

Characteristics of a P2P Loan

A P2P business loan will usually be subject to higher interest rates than a traditional bank loan. This is to recognize or take into account the risk taken on by a private individual to provide a loan and the potential for loan default. These loans are not regulated or subject to government oversight in the same manner as traditional loans are so risk is greater for both a borrower and a lender in these private loan transactions.

Types of P2P Lenders

The lenders in a P2P business loan transaction may be known or anonymous to the borrower. This could present some risks to the borrower in that if the lenders are anonymous, there is no way to verify the individual’s legitimacy or whether the loan is from a legal source. This uncertainty should be understood and the proper questions and due diligence should be observed in order to protect the interests of the borrower against an unscrupulous lender.

Some Concerns Regarding P2P Loans

It is always possible in a P2P business loan that the amount that the borrower seeks for the loan may be less than the amount needed to meet their business purposes. As private transactions, there is no official or regulatory body that can be sought to address this issue and a borrower when using a P2P borrowing option should use caution.

Again, P2P business loans are private transactions that place a tremendous burden in behalf of a borrower to determine the legitimacy of the lender and whether or not the loan, its terms, conditions and rates are suitable for their purposes. Borrowers should carefully read any loan agreement and make any necessary changes to the contract before signing in order to best protect themselves. If the terms are not subject to negotiation, a borrower should be willing to walk away from the transaction and seek other borrowing alternatives.