Peer to Peer or P2P lending is an fairly new option for small businesses to obtain funding.  P2P lending bypasses the bank and directly connects borrows with investors through an internet based marketplace This arrangement serves a need where financial institutions would not traditionally lend.


Interest rates are determined by the credit score of the borrower.  Each of the P2P lenders have a range for interest rates depending on the credit score.


P2P lending provides a win-win for business and investors.  For businesses, entrepreneurs who either don’t want to deal with a traditional bank, need to access cash quickly, don’t have collateral or don’t have great credit have the ability to secure funding.  Investors win since they are able to diversify risk by investing in several projects and get a return on their investment.


Pros for using P2P to fund a business

– Great credit not required

– Fast turnaround

– Minimal paperwork

– Unsecured loan – unlike a bank that requires the business owner to secure the loan with personal property, P2P does not.

– Fixed interest rate

– Some P2P lenders report to the credit bureaus giving the ability to improve credit score



Cons for using P2P to fund a business

– Higher interest rate than a traditional bank, especially with poor credit
– Smaller lending limits – Typically under $40,000
– Typically shorter term – 3 years or less


Peer to peer business loans are crucial to providing credit to small businesses that don’t meet the strict requirements of traditional lenders.