Peer to peer finance

A business will apply for peer-to-peer finance by ‘pitching’ to individuals via a peer-to-peer facilitator. Normally quick and straightforward, this provides funding for a fixed period of time and is suitable for small and medium-sized enterprises (SMEs) and business start-ups. The length of the loan can be structured to meet the need of the business (eg short or longer term).

The business should have a clear idea of the amount it needs to borrow, the amount it can repay and the duration and terms of the loan. It should present full details of the business, its past and projected financial performance, its target markets and its goals and aspirations.

The lenders will consider various factors in agreeing finance, such as the length and history of the business relationship as well as the turnover, profitability and asset base of the company.

The business should aim to sell the idea of what the finance is needed for. For a better response and ultimately cheaper finance the business will need to demonstrate its strengths, its business history and how the finance will be used. The facilitators will perform their own vetting process and rank the business in a similar ranking to credit scoring. A safer ranking will result in potentially more lenders and at more competitive rates.

The business need to convince potential investors about the viability of its business and ability to provide an adequate return on investment.

The business must meet its obligations under the terms of the finance and keep to the agreed repayment schedule. Failure to do so will adversely affect the credit rating of a business and affect future applications for loans. If the business defaults on the agreed schedule, the finance facilitator could demand full immediate repayment of the loan.

Defaulting on the loan could lead to the engagement of debt collectors. Debt chasing is operated by peer-to-peer facilitators as protection for their investors.

In addition to peer-to-peer finance, other sources of finance could include bank loans, commercial mortgages, cashflow finance/invoice factoring and trade loans.