Peer-to-peer lending

Business loans from individuals, businesses and institutions, are generally given through online platforms.

What is peer-to-peer (P2P) lending?

Peer-to-peer (P2P) lending is a fast-growing type of finance in the UK.

It works by matching borrowers with lenders via online platforms or offline brokers.

You fill in an online form and answer questions about how your business will use the loan, the amount you want to borrow, and how long you need the money for.

You also need to provide certain company information.

On some P2P platforms, a decision can be made almost instantly, meaning you might receive the loan in as little as a couple of days.

If you receive a loan, you might first need to pay an arrangement fee to the P2P platform.

Then you pay back the loan, with interest, by making regular repayments for the duration of the loan agreement.

Who's involved in peer-to-peer lending?

There are several peer-to-peer (P2P) lending platforms in the UK and they all operate in a similar way.

You complete an online form, answer questions about your business and the loan you need.

Then the P2P platform matches you with suitable lenders.

When you submit a formal application, the platform will conduct credit checks.

Loans can vary in size between platforms.

Depending on the amount you need to borrow, and your business’ profile, the lending might be:

• unsecured, and driven by the cashflow your business generates
• secured, with you putting up assets as security

Each P2P lender has its own appetite to risk. So, if one lender rejects you, it doesn't mean another lender will too.

What are the benefits of using a peer-to-peer lender?

Wide range of platforms

You should be able to find a lender that closely suits your needs.

Small to large loans catered for

The flexibility of this type of funding means you shouldn't have to borrow more or less than you need.

Simple to borrow

The lending process is straightforward and decisions are made quickly, meaning you receive the money with little delay.

Retain full control of your business

There's no obligation to surrender ownership of part or all of your business, as there is with other types of finance.

What are the risks involved with peer-to-peer lending?

Interest rates

These can be higher for peer-to-peer loans than for standard business loans.

Credit report

Because lenders conduct credit checks, this can have an impact on your credit report.

Being late with a repayment, or missing one altogether, can also harm your credit rating.

Charges and fees

You might have to pay to arrange the loan. And it's likely you'll be charged if you miss payments or repay your loan early.

Defaulting

If you fail to make the repayments on a peer-to-peer loan, the provider may pass the debt on to a debt collection agency, or it may take you to court.

This could affect your credit report.

Is peer-to-peer lending right for me?

About your business

• Business stage: Established with a trading history
• Annual turnover: Any
• Sectors: All
• Regions: All

What do I need to consider before approaching a peer-to-peer lender?

Here are some important questions you'll need to consider before proceeding with peer-to-peer lending:

• How much money do I want to borrow?
• How will I use the loan?
• What’s the interest rate?
• Are there fees involved?
• For how long is the loan?
• Will I be charged for paying back the loan early?
• Will I have to pay a fee for missing payments?
• Can I afford the loan repayments, interest and all the fees?

How do I apply for peer-to-peer lending?

You can search for peer-to-peer (P2P) lenders online.

Once you've found one you think is suitable for your business, you can set up an account with them.

To learn more about how to get started with P2P lending, read the Money Advice Service's guide.