Guide to Peer-to-Peer Lending for Business

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Is Peer-to-Peer Business Lending
How Does P2P Business Lending Work?

A borrower’s credit is assessed with a soft or hard credit pull via the P2P lending platform to begin the process of establishing eligibility. These platforms have different qualifications regarding credit ratings, with some more strict than others. Based on their credit history and score (among other factors), applicants will be assigned a “loan grade” to help lenders and investors choose the applicant that presents the least amount of risk. The loan grade will typically dictate what interest rates and loan terms you receive. Borrowers make a listing for their loan, complete with what the loan will be used for, why they’re a smart investment, and other introductory information that helps lenders and investors make a decision. Lenders then have the opportunity to bid on listings, including the amount they can lend and interest rates offered. When the business’ listing ends, all qualified bids from lenders combine to form a single loan, which is then deposited directly into the borrower’s account for immediate use.
Typical P2P Rates, Terms, and Amounts
Pros and Cons of P2P Business Loans for Borrowers
Pros
Typically quick loan application process and funding Competitive interest rates for well-qualified borrowers Access to funding for those who may not qualify with traditional lenders More personal process as lenders can get to know the borrower’s story based on their profile Many loans are unsecured
Cons
Limited regulations on peer-to-peer business lending could make this riskier than loans with traditional lenders. Some are not backed by FDIC, as banks are. Some P2P lenders offer small loan amounts leaving borrowers to seek additional funding elsewhere Interest rates can vary greatly depending on borrower’s qualifications
Common P2P Business Loan Uses

Peer to peer lending for startup funds Short-term business loans for smaller or urgent purchases Equipment purchases Inventory purchases Cashflow Business renovation and expansion Consolidating with a small business debt consolidation loan or refinancing business debt
5 Tips on Qualifying for a P2P Loan
1. Collecting Documents Before Applying
Tax returns Bank statements Business tax returns A business plan Identifying documents Personal story to share with investors reviewing your P2P inquiry Documents regarding income and outstanding debts
2. Checking Your Credit Score
3. Checking Your Eligibility
4. Determining What You Can Afford
5. Seeing About Pre-Qualifying
How to Apply for a P2P Business Loan
Determining the Loan Amount
Comparing Peer-to-Peer Lending Platforms
Applying Through a Peer-to-Peer Lending Platforms
Setting Up Your Peer-to-Peer Loan Listing
Alternatives to Peer-to-Peer Business Loans
Restaurant Loans
Commercial Real Estate Loans
Franchise Financing
Equipment Financing
Microloans
Working Capital Loan
Business Line of Credit
SBA Loans
Compare P2P Lenders with Lantern by SoFi
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About the Author
Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
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