If you have a small business and need some operating capital or capital to expand your small business, it can quite often be very difficult to find funding. Typically funds from angel investors or from venture capitalist require a lot of groundwork and meetings and business loans from banks usually come with less than favorable terms. Fortunately, there’s a newer type of loan, called a peer-to-peer business loan, that can provide business owners with loans of $5,000 to $20,000 without a ton of hassle.
There are two peer-to-peer lending companies that offer peer-to-peer business loans in the United States, including Lending Club and Prosper. Small business owners can use these services to create loan listings for small business owners, then individual investors can choose to fund part of the loan that the small business needs. After a funding period, the peer-to-peer loan company will collect the funds from the individual investors and provide the funds to the small business owner.
The peer-to-peer business loans that Lending Club and Prosper facilitate typically amortize over a period of 3 years. The interest rate that borrowers can get will depend largely upon their credit rating, but interest rates will typically be between 8% and 20%. Borrowers will also be charged between a 1% and 3% one-time origination fee.
The terms of the loan are pretty similar to what small business owners would have to pay if they got a regular loan from the bank. With peer-to-peer business loans, there are likely fewer options in terms of repayment schedules, but these types of loans do allow you to get financing with much less hassle and often on a shorter notice than you would with a traditional bank loan.
Certainly the best option for your small business is to operate on a cash basis and pay expenses with the revenue that you receive, but in some situations, such as for businesses that are just starting up, that’s not always an option. If you do need a small to medium sized loan for your small business, a peer-to-peer business loan can be an excellent option.
