The Future of Lending: The Benefits and Drawbacks of Peer-to-Peer Financing for Your Small Business
Some call it the future of lending. Others claim it is just the latest way for small business owners and entrepreneurs to finance their dreams. But no matter what you call it, peer-to-peer lending is here to stay.
In many ways, peer-to-peer lending has already revolutionized the world of small business financing, giving startups and entrepreneurs access to capital that they would not otherwise have. Peer-to-peer lending has also helped revolutionize the investment world, giving ordinary men and women a chance to earn higher interest rates while getting in on the ground floor of some truly amazing products and innovations.
Given all the talk about peer-to-peer lending, you may intrigued by how it works, what it has to offer and what you should watch out for. If you are thinking about financing your own business through peer-to-peer lending, here are the pros and cons of this unique lending practice.
The Benefits of Peer-to-Peer Lending for Your Small Business
Peer-to-peer lending can have a number of advantages for small business owners and entrepreneurs, and many startups have already used it successful. Whether used in conjunction with more traditional forms of financing or on its own, peer-to-peer lending offers these important advantages:
• Faster Turnaround - Getting approved for a business loan can take months, but peer-to-peer lending approval moves much more quickly. If you sign up for a peer-to-peer loan, you could have your cash in a matter of days.
• Potentially Lower Interest Rates - For lenders with good credit, the interest rates on peer-to-peer loans can be quite reasonable. This potential savings can be quite attractive, especially for firms in their pre-profitability phase.
• Simple Process - The peer-to-peer lending process is surprisingly simple, especially for small business owners and entrepreneurs used to dealing with banks and wrestling with red tape.
• Less Paperwork - For businesses mired in red tape and paperwork, the switch to peer-to-peer lending can be quite refreshing. Since these loans take place online, there is no extensive paperwork to complete and no hoops to jump through.
The Potential Drawbacks of Peer-to-Peer Lending
Peer-to-peer lending does have some compelling advantages, but this relatively new form of financing is not without its flaws. Here are some of the biggest potential disadvantages of using peer-to-peer financing for your small business.
• A Lack of Financial Regulation - Peer-to-peer lending is still relatively new, and this market segment is still largely unregulated. That lack of regulation opens the door to unscrupulous operators, and small business owners should choose their lending partners with care.
• Reliance on the Personal Credit Score of the Business Owner - For now at least small business owners must rely on their personal credit scores to qualify for peer-to-peer loans. This can be bad news for firms with strong business credit but weak personal credit scores.
• No Face-to-Face Interaction - Some small business owners prefer to do things face to face, and those entrepreneurs may not be comfortable with peer-to-peer lending sites. This lack of personal interaction can sap the confidence of certain business owners, and those individuals may be happier with more traditional forms of financing.
• No Ability to build Long-Term Relationships - Another potential drawback of peer-to-peer lending is the inability to build long-term relationships. Since investors come and go on peer-to-peer lending sites, the financing could be provided by a different person each time.
Whether you consider peer-to-peer lending the future of financing or just another trend in business loans, it is important to understand how the process works, what it has to offer and how you can get started. Now that you know more about the benefits and drawbacks of peer-to-peer lending, you can make an intelligent and informed decision about the future of your own business.
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