Out of necessity emerges opportunity, and such is the case with peer-to-peer lending.
Incumbent banks are still the primary source of most business loans, but they are often tied to older slow and rigid processes to sell, underwrite and approve loans for small businesses. While still valuable, they can present numerous difficulties to those seeking to raise capital, often lacking the frameworks to be able to make decisions on loans based on more modern data points.
Into this semi-vacuum, peer-to-peer lending platforms have entered to present a viable alternative to banks or specialised business lenders, with the resulting peer-to-peer (P2P) lending ecosystem now booming. For those interested in borrowing from other businesses, there is now a diverse selection of peer-to-peer lending platforms to choose from.
According to the British Business Bank, in 2017 more than £1.78bn was lent to UK businesses through Peer-to-Peer Business Loan platforms
The nature of peer-to-peer marketplace platforms
As peer-to-peer lending platforms are marketplaces i.e. the facilitators, rather than the lenders themselves—the barrier to entry is low. They connect borrowers with lenders, making life easier for both. Loan sizes vary widely, generally starting as low as £1000, and going upwards from there, topping out at £1 million typically.
The ecosystem of different players has matured, with different platforms seeking to differentiate themselves among different niches on top of the basic feature-set.
Peer-to-Peer (or P2P) lending, commonly known as social or marketplace lending, matches those looking for financing with those able to offer it. Lenders are generally private investors —both individuals and institutional—who are effectively providing unsecured loans for the most part (but not exclusively).
As these unsecured loans are only supported by the business’s own creditworthiness—in other words, without collateral—they are a real boon to digital businesses who might not meet traditional lenders’ often rigid requirements, such as putting up physical collateral.
In the UK p2p loans are classed as an alternative finance means, putting them in the same category as other emergent finance types like crowdfunding and retail bonds.
Who are the best peer-to-peer lending companies?
Based on our research, these are the main players in P2P lending that support business loans, along with their standout features for lenders and borrowers.
1: Upstart
Upstart was founded by former Google employees and has quickly become a go-to source for financing among emergent business owners whose businesses’ for whom more established lines of finance are out of reach. Personal loans can be used to finance any activities typically related to starting a new business.
Loan amounts: $1,000-$50,000. Terms: 3 to 5 years. Eligibility: US residents only. Good choice for: Those looking to borrow from an established marketplace.
2: LendingClub
LendingClub offers business loans of up to $300,000, which are provided with one to five year loan terms bearing a fixed interest rate. There are no prepayment penalties and the marketplace has already facilitated more than $28 billion in worldwide loans. To qualify for business loans, companies need to have been trading for more than 12 months and have at least $50,000 in annual sales.
Loan amounts: Up to $50,000 Terms: 1 to 5 years Eligibility: US residents only. Good choice for: Those that want to be able to access all their loan capital up front, and want flexibility in repayment.
3: FundingCircle
By now a household name, certainly within the fintech community in the UK, FundingCircle is available to both US-based and UK-based borrowers. 54,000 UK businesses have borrowed more than ÂŁ5.8 billion through Funding Circle and it offers unsecured loans of up to ÂŁ500,000.
Loan amounts: Up to ÂŁ500,000. Terms: 6 months to 5 years. Eligibility: US and UK residents only. Good choice for: Businesses that are already demonstrating viability and gaining traction, but want to raise capital outside of normal funding rounds.
4: StreetShares
StreetShares is a lending platform which lends directly to businesses that have been trading for at least a year. The company favors local and veteran-owned businesses. StreetShares is actually also a white label credit provider — it passes on credit from other institutions, but of course that is not visible to the end user.
Loan amounts: $2,000 to $250,000 Terms: 3 months to 3 years. Eligibility: US residents only. Good choice for: For more established American businesses looking to use peer to peer financing, this is a good option.
5: Prosper
Prosper takes a novel approach to peer-to-peer financing by dealing directly with the individuals behind companies, rather than to the businesses they are involved in. As such, applicants having a good credit history becomes essential.
Loan amounts: $2,000 to $40,000 Terms: 3 to 5 years. Eligibility: US residents. Good choice for: Solo business owners such as entrepreneurs and solopreneurs that might not meet traditional business lending criteria because of their structure.
6: Capalona
Capalona is a low cost peer-to-peer lending platform which borrowers in the UK can access. They promise an agile application process which can be completed in a few minutes, and upon approval businesses will have access to funds within 48 hours.
Capalona is a member of both NACFB and FSB.
Loan amounts: Up to ÂŁ500,000. Terms: From one month to more than five years. Eligibility: UK-based companies. Good choice: For businesses looking for a quick application and approval process.
7: Zopa
In 2005, Zopa built the first ever peer-to-peer lending platform so has put that relative experience into building a robust solution for pairing borrowers and lenders. It has approved more than ÂŁ5 billion in loans to date.
Open to solopreneurs, Zopa loans have no effect on individuals’ credit scores, and Zopa supports debt consolidation and increased borrowing applications. On the flipside, loan amounts are much smaller relative to some of the other peer-to-peer lending platforms.
Loan amounts: Up to ÂŁ25,000 Terms: 1 to 5 years Eligibility: UK-based individual or sole trader. Good choice: For sole traders that want a flexible P2P borrowing platform.
8: Assetz Capital
Another popular peer-to-peer lending platform for UK-based borrowers is Assetz Capital. The platform has almost 38,000 investors signed up and has lent ÂŁ990m to UK businesses to date. The lender offers a number of peer-to-peer borrowing products for businesses and promises extremely quick decisions without the traditional 'red tape'.
Customers can pick from a relatively wide selection of loan types, including specific types of finance that an SME might need to grow, including SME term loans, commercial mortgages, development finance, and buy to let mortgages.
Loan amounts: Up to ÂŁ2.5 million for some products such as commercial mortgages. Other vehicles, such as buy-to-let for landlords, have lower limits (ÂŁ250,000). Terms: From up to 1 year to up to 5 years depending on the loan vehicle Eligibility: UK residents. Good choice for: Borrowers looking for a lender that offers a variety of business financing solutions.
Alternatives Options
Finally, businesses can look at alternatives to strict peer to peer lending platforms, such as loan aggregation services. Seeking out independent advisory services is also available for borrowers that need to ensure that they are drawing down finance from a reliable source.
9: Think Business Loans
Think Business Loans is a loan aggregation service. Its lending experts offer quick consultations to find the best lending sources for borrowers, including peer-to-peer lending solutions. After a five-minute initial consultation, the Think team will use their iFunds Matching Technology to recommend the best financing option for the prospective borrower. Think Business Loans also handles securely processing supporting documents.
Small businesses, like most borrowers, are not interested in finance products per se, but simply want to borrow on terms that best suit them. This is where Think Business Loans shines.
Think Business Loans is a helpful option for businesses that require finance and are missing out on reliable financial advice that is holistic, i.e. takes into account all the possible funding options and amounts, due to the lack of modern frameworks provided by banks and traditional lenders. Small businesses are likely agnostic on the matter of whether they adopt traditional or alternative financing sources but don’t know where to start.
Eligibility: Open to UK-based borrowers. Loan amounts: Up to ÂŁ10M for secured loans. Maximum borrowing sums for other (unsecured) products tend to be smaller, such as ÂŁ50,000. Terms: From six months to 30 years depending on the product. Good choice for: Those that need some personal advice to help choose between different P2P providers.
10: British Business Bank
We kept this one until last on our list because it’s not truly a borrowing platform, but for UK-based businesses they are mandated to provide a reliable point of contact for any questions they might have about peer-to-peer business financing options in the UK, as well as providing finance directly.
The British Business Bank is a government-owned business development bank whose mission is to “increase the supply of finance available to growing smaller and medium sized businesses.” Its financing can be accessed through other platforms but its website also contains useful questionnaires which can help prospective borrowers consider whether this might be the right financing model for them at all.
Good choice for: Those that are seeking independent and trustworthy advice before deciding on a financing option like a peer-to-peer lending platform.
Get Borrowing Today
There are a variety of peer-to-peer lending platforms that represent borrowing options for businesses, UK-based or overseas. These alternative financing options present potentially more flexible, and almost-certainly more speedy solutions for small businesses who are more likely to have problems meeting traditional lending criteria.
Photography: Emery Meyer — Unsplash
