Peer-to-peer lending

Peer-to-peer (P2P) lending is a fast-growing way for businesses to raise loan finance without having to use the traditional banking sector.

P2P lending involves raising a loan from a group of individuals or institutions and is a very flexible source of borrowing, with the minimum loan amount ranging from £5000 to £50,000 and terms ranging from 6 months to 5 years.

Most P2P lending is unsecured, so the borrowers do not have to commit personal or business assets as security. However, most P2P lenders will not deal with start-ups and very young companies, so this source of funding is best-suited to businesses that have been trading for several years and need loan capital to support expand.

P2P loans do not involve surrendering any control of the business but they usually involve directors signing a Personal Guarantee, which commits the directors of the company to guarantee the loan if the business fails to repay.

Key points to remember about peer-to-peer lending

• Connects businesses looking for finance with individuals willing to invest or loan
• Managed by online intermediaries
• Effectively cuts out the role traditionally played by banks
• Increasingly popular, particularly for fast-growing, established businesses with a good credit track record

Example of P2P Lending

One of the most successful P2P lending providers in the UK is Funding Circle which was formed with Government support a couple of years ago. The short promotional video below demonstrates the P2P process.