Best Peer-to-Peer Business Lending Options
Peer-to-peer lending offers one solution that can be beneficial for businesses looking for financing. It is important to understand how peer-to-peer business loans work, who offers them, and the qualification requirements to get approved as well as how they compare to other options like credit cards.
Although the capital financing market for small businesses has loosened over the last several years, some businesses still struggle to get the funds they need. Companies that lack business assets that can be used as collateral to back a loan or line of credit or those who don’t want to risk a personal guarantee on a business loan find it difficult to get affordable financing.
However, some lenders have made a commitment to fill this void left by big-bank traditional lenders, creating a new industry altogether.
Peer-to-peer lenders, or P2P, have become a reliable source of financing for small business loans over the last decade. P2P loans are also a popular resource for personal loans. Created to serve the unique financing needs of small businesses across multiple industries, P2P lenders make it easier for companies that lack assets or have less than ideal credit to get the funding they need quickly.
Below are several options for peer-to-peer business lending, as well as an overview of how the process works for small businesses.
On this page:
- Best Peer-to-Peer Business Loans
- How Does Peer-to-Peer Business Lending Work?
- Pros and Cons of Peer-to-Peer Lending
Best Peer-to-Peer Business Loans
There are several lenders now offering peer-to-peer lending for small business owners, each with different interest rates and costs, repayment terms, and business qualification requirements. A few options include the following.
Editorial Rating: 4.05/5
9% – 40%
Up to $100,000
StreetShares is a newer addition to the P2P business lending marketplace, and it was developed with a focus on veteran small business owners. The online lender provides an easy application process through its online platform, as well as the following features to small business owners:
No personal minimum credit score requirement
- Minimum annual revenue of $25,000
- Maximum loan amount of $100,000
- Interest rates ranging from 9% up to 40%
- Funding time for new loans from one to five business days
Editorial Rating: 3.93/5
7.4% – 36%
6 – 60 months
$25,000 – $500,000
Funding Circle is another P2P online lender providing small business loans to qualified companies. The lender also has a streamlined application process submitted through its online platform, alongside the following features:
- A minimum personal credit score of 620
- No minimum annual revenue requirement
- Loan amounts ranging from $25,000 up to $500,000
- Interest rates ranging from 7.4% to 36%
- Repayment terms as short as six months or as long as five years
- Funding turnaround time from one to two weeks
Editorial Rating: 3.80/5
6% – 36%
1 – 5 years
$5,000 – $300,000
LendingClub is a leading peer-to-peer lender offering small business loans to qualified companies throughout the United States. The P2P lender makes the application process easy, as it is all completed online, and it offers fast approvals for companies that meet the eligibility requirements. Some of the key features of LendingClub include:
- A minimum personal credit score of 600
- Minimum annual revenue from the business of $50,000
- Loans ranging from $5,000 up to $300,000
- Interest rates ranging from 6% to 35%
- Repayment terms from one to five years
- Funding in as few as two business days
How Does Peer-to-Peer Business Lending Work?
Peer-to-peer lending has become more popular among small businesses in need of financing because of the ways it differs from traditional small business lending. Instead of going into a bank or credit union for a small business loan, business owners can visit a P2P lender online and submit an application in a matter of moments. Also, instead of leaning on the bank reserves for funding availability, peer-to-peer small business loans are backed by other investors and small business customers.
When an application for a new small business peer-to-peer loan is submitted, the lending platform matches small business applicants with investors through an algorithm behind the scenes. The investors involved in a specific lending company can see which loan applications are available, how much funding they need and for what purpose, and then choose to invest in the loan to help fund it.
For this reason, peer-to-peer lending is often referred to as social lending, as it connects those with available finances to small businesses in need of funding.
Peer-to-peer lending also differs from traditional bank or credit union lending in terms of eligibility requirements, the application process, and repayment options.
With a peer-to-peer small business loan, small businesses must meet the specific eligibility criteria laid out by the lending platform they select. In some cases, this means having a minimum number of years in business, most often at least one year, and minimum annual revenue requirements. The smallest minimum annual revenue number across the most popular P2P lenders is $25,000.
In addition, small businesses may also be required to provide a personal guarantee for the loan, meaning they are taking personal responsibility to repay the balance, even though it may be taken out in the name of the business.
Small business owners are also required to provide details about the financial strength of the business with P2P loan applications. These details may include a balance sheet, debts owed to other creditors, and cash flow of the business. The information required differs for each peer-to-peer lending platform, but all accept these details through their online system.
The application process for P2P lending is made simple for small business owners, as it is completed online instead of in-person or over the phone. Small business owners submit their request for a loan, including the amount needed and the purpose for the funding, and then these details are passed along to investors on the platform. Once an investor selects to fund a loan application, the lending platform informs the small business owner that the loan has been funded.
There are some cases where the lender asks for follow-up information about the business financials. However, once approved, funding of the loan takes place in just a few days.
Many P2P lenders offer different repayment terms once a loan for a small business has been approved. Depending on the credit history of the business or business owner and the amount of the loan, repayment may be as short as six months or up to five years. Small business owners can select which repayment term works best for their needs.
Pros and Cons of Peer-to-peer Lending
Peer-to-peer lending offers several advantages to small business owners, including the following:
- Fast applications that are easy to complete online
- Quick turnaround time for approval
- Timely funding of new loan applications
- Competitive interest rates for well-qualified small business applicants
- Borrowers remain anonymous to the investors backing the loans
- Reapplying for new financing is easy so long as payments are made on time and in full
- May offer options for small business owners with less than ideal credit
- A transparent process from start to finish
Although there are clear benefits to peer-to-peer lending, drawbacks do exist. Small business owners need to be aware of the following downsides of P2P loans before applying or accepting funding:
- A personal guarantee may be required for small business owners with less than perfect credit or minimal business assets.
- Borrowers may pay higher interest rates than conventional bank or credit union small business loans
- Missing payments have a negative impact on the small business owner’s credit history
- Automatic payments may be required for approval of a small business loan
Overall, peer-to-peer lending has changed the game for small businesses seeking financing solutions for a variety of business needs.
With a P2P small business loan, small business owners have access to more funding through a network of investors that they would not otherwise have access to, and the application and approval process is as simple as it gets.
Small business owners also have faster access to financing when they need it most and a variety of repayment terms to fit their needs over time.
However, it is necessary for small business owners to recognize that there are still qualification requirements that must be met in order to be eligible for a new loan. Also, a personal guarantee may be required as part of the loan agreement. Business owners should take time to consider these features before selecting a P2P loan for their financing needs.