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SME Organic Growth

A guide to peer-to-peer (P2P) business loans

P2P (peer-to-peer) platforms match SMEs needing finance with individuals, companies and other organisations with money to invest. businesses with lower credit scores have found P2P a good way of accessing short-term finance.

by Credit Passport
5 MINS READ

What is peer-to-peer (P2P) finance?

Peer-to-peer finance matches businesses looking for finance with individual investors. An alternative to traditional bank loans, P2P lending can happen offline, via brokers. But the term is most commonly used as a shorthand for online platforms. The platforms connect borrowers directly with lenders, who come from a variety of sources. Depending on the platform, they could be individual consumers, companies or other organisations. Between then, the various P2P platforms provide not just business loans but also consumer loans and mortgages for commercial and rental properties and consumer loans.

Are P2P lenders providing COVID loans?

Yes, a small number have been accredited and are listed on the British Business Bank website. You can submit your loan application through the Credit Passport Finpoint Funding Portal.

Why do companies use P2P lending?

Currently, some businesses are using P2P finance to apply for support under the COVID loans scheme. Previously, P2P lending was typically used for short-term loans. Because it was possible to access finance quickly, the loan might be put towards paying for additional stock or managing cash flow while waiting for payment of an invoice.

A loan approval from a P2P lender can be much quicker than a bank. Sometimes a lending decision can be almost instant, or it might take just a few days or weeks.

What are the advantages of borrowing from a P2P lender?

Typically, you can access finance much more quickly than you can get approval from a bank. Sometimes, a lending decision can be almost instant, or it might take just a few days or weeks. The money comes into your account within a few days.

How much can a company borrow?

Currently, the big P2P platforms are focusing on providing loans under the COVID scheme. For example, under the Coronavirus Business Interruption Loan Scheme (CBILS) loan scheme, you can borrow between £50,001 and an upper limit determined by the platform.

Is P2P lending regulated?

Yes, peer-to-peer platforms are regulated by the Financial Conduct Authority (FCA) so platforms have to meet its requirements. They must be clear, transparent and not misleading on the risks involved. All lenders have to be open about risks and have a back-up plan in case something goes wrong.

A P2P platform matches your application with suitable lenders and provides an interest rate and repayment terms.

What does it cost?

Previously, most platforms charged an arrangement fee when you take out a loan, followed by regular interest payments. There could be fees for missed payments and possibly early repayments. But COVID loans have different criteria and these standard fees may not apply.

As for interest rates, these are competitive because platforms have little of the instructure and overheads required by traditional banks. Your interest rate is bespoke and is calculated based on your risk profile and credit score.

How can I access a P2P loan?

To access P2P finance, you need to complete a questionnaire on one of the platforms. It would typically ask you how much you want to borrow, for how long, and the purpose of the loan. You'll also be required to supply information about your company. The platform then matches your application with suitable lenders and provides an interest rate and repayment terms. You can speed things up by applying through the Credit Passport Finpoint Funding Portal.

What about my credit history?

A "soft application" for a P2P loan - that is, simply completing a questionnaire online, doesn't affect your credit score. But the platform will conduct credit checks if you go ahead and make a formal application.

That's why it's quicker to apply through Credit Passport. You'll already have details of your business and finances in your Credit Passport, so you won't need to resupply this information to the lender.

What if I'm turned down?

If you're turned down by one P2P platform, you can simply go ahead and try another one. Different platforms have different risk criteria.

Credit Passport business credit score benefit:

Credit Passport offers the only credit score for business created in real-time, that reflects the fast-changing nature of SMEs. Credit Passport score can be used to show any lender your company's credit quality in a most accurate manner. Join for free!

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