Saturday, May 5, 2012

Is peer-to-peer lending right for my business?

In the world today, finance is still the core of what makes our society work. People must be able to borrow money and turn assets into mobile currency in order for the economy and people to grow and innovate. Banks have always facilitated a large portion of this and in many countries they are tightly controlled. The down side of this is that investors willing to take more risk can't find those who can't get funding. There is a great need to connect these lenders with borrowers. Many peer-to-peer sites have found that they can make money by simply connecting the two...with almost no risk to the facilitator. This means people can get a bigger reward for accepting the risk.

I would recommend a look at this article at some point, but I don't agree with everything:


One thing I would like to discuss are interest rates. Why are peer loans so much higher in interest rate? The real question is why are the rates set by the Fed so low? The Fed set interest rate is not based on the market. The market dictates that rates should be much higher. Peer loans simply reflect a more market based rate. Also one thing to note is that the loans do not have collateral associated with them like an auto loan or mortgage would.

So now that you get to idea of peer-to-peer lending. Is peer-to-peer the right way to finance YOUR small business? In order to answer this we need more questions:

1. The first question is how much?

How much do you need to get off to the next phase? Do you need 5,000 to fix up your leased building? Do you need money for inventory? Think and come up with a number. If this number is greater than about 25,000 then you need to look at other sources. Otherwise keep going!
2. Do you have assets you could put up for collateral?

What could be used for collateral. If you find a way to get a low rate without sending everything you own to the pawn shop, then GREAT! Consider that fact of the asset getting repossessed. You will have bad credit and no asset instead of just bad credit. Otherwise keep going!

3. Do you have a compelling story?

People love a good story. If your getting the money to fulfill a life long dream, or to accomplish something you have always wanted to accomplish, then peer-to-peer is the way to go. People love to see money going to making dreams come true rather than paying off old debts.

The payments and payoffs are the same as a regular bank loan so nothing new to know about there. Good luck!