Women ask me everyday how to get financing for their business. Bank loans have all but dried up for micro business enterprises, except those businesses (and their owners) who already have money, a pretty robust credit score, and a verifiable income stream from which to repay the loan.
So what’s a girl to do if she wants to launch the business of her dreams and be smiling with a wad of cash like the woman in this picture?
Look somewhere other than a traditional bank for a loan. Non-traditional lending sources have become more popular as normal lending sources have tightened up. ”Peer to Peer Lending” is one of those non-traditional lending sources for entrepreneurs.
With P2P lending, you completely bypass a bank, and instead utilize an internet based lending portal where the lenders are regular folks with cash to lend who are looking for a decent return on their money. The borrowers are everyday people looking to pay off consumer debt and small business owners needing cash to fund their businesses. Obviously, the interest rate is slightly higher than a traditional bank loan to cover the increased risk of default. However, the benefits of borrowing small dollar amounts, with less hassle, and a better than average likelihood of actually being approved, make the higher interest rate a non-issue with some borrowers.
Here are 5 things you need to know about P2P lending before you jump in:
1. Research different P2P companies: there are several out there and each has its own lending model, with important nuances. Some require minimum credit scores, credit union memberships and shorter payback terms. Some of the better known P2P lenders are
2. READ the terms of your loan! This sounds insultingly simple, but as a business law attorney, I talk to clients every day who don’t. It is important that you understand your interest rate, the payment due date, the loan term, etc. Avoid the temptation to just take the money on any terms. Make sure that the terms are terms you can live with.
3. Some of the lenders allow you to request a specific interest rate for the loan in your funding request. If so, be realistic. Remember that the lenders are looking for a good rate of return, and they are combing through lending requests to consider the most attractive requests. If you are requesting $10,000 at 3%, um…you’ll be one of the many unfunded loan requests. Which brings me to my next point.
4. There are many unfunded loan requests. So think about how your request will stand out from the crowd. Here’s a tip: TELL YOUR STORY. People love personal stories. The P2P lenders are no different. They are regular folks who can be swayed favorably by a compelling story. The goal is to your loan request funded. Make sure the prospective lenders know who you are, what you’re about, what you’re going to do with the money, why you need it, and why you’re pursuing this particular business or idea or course of action. Your investor/lender wants to relate to you.
5. As with any loan request, do not over-borrow. Business debt is a tool that used properly can help launch and stabilize your business. However, getting too far into debt can sink you quick, fast and in a hurry. Carefully consider how much money you need. Then, think again.
Have any of you used a P2P lending company before? What was your experience? Were you aware that these existed? I’d love to hear from you?
Traci – thanks for this info. I’ve been self employed for 19 years and never heard of P2P lending! I’m glad to know about your site.
Andrea, as entrepreneurs, we are always learning something new! I’m glad you found the information useful.
Hi Traci,
Nice to meet you! As a former Strategy Consultant who moved to New York to start a peer-to-peer lending business, I deeply rely to your article! Thanks for taking the time to write up this relatively unknown and underappreciated lending option for small business owners. I’d just like to add a point to your write up if you don’t mind! While it’s true that any lending institution will try to offset a higher default risk with a higher interest rate, peer-to-peer lending tries to understand every potential borrower (through his credit scores and other information) to give them a specific interest rate that corresponds to their situation. Additionally, they have lower costs than those incurred by a bank so they can pass those savings onto both borrowers and lenders. We try to do that at Peerform. Best credit scores get lower rates. Our goal is keep both our borrowers and our investors happy – and wealthy!
Let me know if you need more information, I’d be happy to help you girls start and fund amazing businesses!
Jessica
Jessica, thanks for contacting me and a BIG thanks for your point of clarification regarding interest rates. That’s a great point that makes P2P lending potentially even more attractive to prospective borrowers. I appreciate your insight as a P2P industry expert!
It’s really a nice and helpful piece of information. I’m glad that you shared this helpful info with us. Please keep us informed like this. Thanks for sharing.
You’re welcome! I’m glad you found it useful. Please visit often.