Your Guide to Peer-to-Peer Business Lending
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Editor’s note: At Lantern, we strive to help you make financial decisions with confidence. To do this, we occasionally feature content that includes information about our partners and their products or services. We do not provide, endorse, or guarantee any third-party product, service, information or recommendations—and our opinions are our own.
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
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 Limited regulations on peer-to-peer business lending could make this riskier than loans with traditional lenders; not backed by FDIC 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
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
Applying for a Peer-to-Peer Business Loans
Lenders Who Offer Peer-to-Peer Business Loans
Alternatives to Peer-to-Peer Business Loans
Commercial Real Estate Loans
Working Capital Loan
Business Line of Credit
Compare P2P Lenders with Lantern by SoFi
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