The peer-to-peer lending model (also known as P2P lending) emerged shortly after the turn of the new millennium. UK innovators Zopa created the first web lending platform to connect borrowers to individual lenders back in 2005 but it was a few more years until it caught on in the US. A common funding mechanism for personal loans, you’ll also find peer-to-peer business loans available too. The practice is growing in popularity in the US with millions of dollars now issued annually in peer-to-peer business loans and with this only expected to grow in the future.

The global peer-to-peer lending market size was estimated at $68 billion in 2019 and is expected to reach $559 billion by 2027 – a compound annual growth rate of 29.7% between 2020 and 2027. These market insights and forecasts have come after the coronavirus crisis by the way – if traditional banks and lenders are not going to serve the people and businesses of the future then P2P has even more room for growth.

When opting for a peer-to-peer business loan, borrowers receive comparable terms to that offered by traditional lenders, but the process to attain a peer-to-peer loan is typically much easier and quicker than your usual SBA loan or construction business loan. On the other side of the P2P spectrum, investors are also able to receive reliable returns. Rates and returns can range from ±4% to 10%, or more. The P2P model provides access to peer-to-peer business loans fast for business owners that have been traditionally underserved by the US banking model.

Peer-to-Peer Lending Companies for Business

Lending Club Loan Review

P2P business loans: Yes

Peer-to-peer loan amount: Up to $500,000

Over $28 billion in loans have been facilitated through Lending Club and 95% of clients would recommend Lending Club to a friend or family. There are no prepayment penalties and peer-to-peer business lending can start from as low as 4.99%. What’s more for loans under $100k no collateral is required. This is a very good option for those looking for unsecured loans.

Source: www.lendingclub.com/business/lending

Funding Circle Loan Review

P2P business loans: Yes

Peer-to-peer loan amount: Up to $500,000

Since 2010, Funding Circle has helped businesses in over 700 industries access the capital they need. In total over 81,000 businesses have been served globally and provided $11.7 billion in funding. What’s more, Funding Circle is rated ‘Excellent’ on Trustpilot – based on 7,840 customer reviews – a substantial amount of reviews for a lending solution aimed at businesses.

Prosper Loans Review

P2P business loans: Personal, but suitable for early-stage businesses and startup loans

Peer-to-peer loan amount: Up to $40,000

Prosper has issued $14 billion in loans to over 900,000 individuals. Providing funds for a range of needs including the funding of a new business venture. One customer has joined the #MyProsperStory to comment “Prosper allowed me to apply for a loan and receive the amount we needed to make our business a success in days. We now run our recording studio.”

How Does the Peer-to-Peer Business Loan Mechanism Work?

While there are variations, the standard P2P Business lending practice is to acquire a set of qualified investors who want to lend money directly to qualified businesses.

The companies who offer peer-to-peer business lending act in a similar way to online lenders and brokers, but with much easier terms than traditional bank lending programs. Because there is no middleman and often no shareholders to pay, the rates and terms can be favorable to both lender and borrower, fueling economic growth according to the needs of real businesses. Investors can also take comfort knowing they are helping business owners around the world achieve their dreams.

The proof is in the pudding too – over the last 10 years investors have seen average net returns of between 5% and 9% for loans issued through LendingClub and Prosper P2P loans. Back in 2014, LendingClub reported that it had saved borrowers $250 million in interest charges – a year that it facilitated $4.4 billion in loans through its platform.

What Risk is There With Peer-to-Peer Loans?

Like any new financial product, there were some early nerves about the security of P2P. But since its inception, the P2P industry has grown to be regulated by the FCA in the UK and the SEC in the US.

Prior to 2008, P2P lenders had less restrictions on borrower eligibility, and peer-to-peer business lending wasn’t registered as a security. However, this changed in 2008 after the Securities and Exchange Commission (SEC) intervened, citing the need for compliance with the Securities act of 1933.

At one point in 2019 it was also reported that P2P investors on the Funding Circle platform who were looking to sell their loan book in the secondary market were having to wait a number of months for a buyer – significantly longer than the matter of days it had taken in the past. But in reality this would be of little concern to borrowers providing that Funding Circle has enough capital to issue peer-to-peer small business loans to those who meet the qualification requirements for P2P business loans.

Is Peer-to-Peer Business Lending Possible Without Collateral?

If you’re seeking under $100,000 in peer-to-peer business loans with Lending Club then there is no need to provide any collateral. This can raise the question, how are investors protected?

All P2P lenders have some minimum requirements for borrowers, to prevent default, but some are more lenient than others. The most secure brokers provide insurance to lenders against borrower default, but most prevent it from ever occurring by ensuring that businesses can handle the loans that are issued in the first instance. Investors are also warned that despite positive returns seen across the industry to date there is the chance for investments to go down as well as up.

Final Word on Peer-to-Peer Business Lending

Peer-to-peer lending has been on the scene for 15 years now but arguably still hasn’t reached the heights it can. The original intentions of P2P lending have perhaps changed in this time too – the ability to allow individual investors to provide investment into small businesses and get reliable returns is becoming harder. Larger lending firms, such as pension and trust funds now provide a lot of the funding for P2P lenders. That being said, the same desired outcome of reduced borrowing rates for businesses and easier access to capital are still being achieved. There is still a small group of P2P lenders who do leave room on their platform for individual investors to provide capital to their peers too.

Peer-to-peer lenders for bad credit are a bit more tricky to come by. Generally, as P2P firms are committing other people’s cash they can be more stringent with their borrower requirements – given the reputational risk at the heart of what these businesses do, it is understandable as well. That being said be sure to check the lending criteria of any P2P lenders you wish to apply for as some are certainly easier to access than others.

As always ensure you are not borrowing more than your business can afford to repay. If you think you might have problems repaying peer-to-peer business loans, it’s best that you avoid taking peer-to-peer small business loans in the first place. An inability to repay a P2P loan will hurt your business’ credit score just as much as defaulting on a bank loan. With everything being said though, business peer-to-peer lending remains an innovative and very real opportunity to raise capital for your business needs like buying equipment or paying the suppliers. Peer-to-peer small business loans are on the increase throughout the US – meaning more and more small businesses are having their P2P lending applications approved each day.