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Peer to Peer Lending for Business Funding

Date Added: 03/02/2016  

At 4R Business Recovery, we help to rescue businesses that are in financial difficulties, working with them to turn their fortunes around. We also specialise in advising businesses on how to raise finance to invest to help them grow, from start-ups to well-established operations, and that usually means some sort of loan. Peer to Peer Lending is one type of loan that’s available to you.
 
Peer to Peer Lending is an increasingly popular method of borrowing. Indeed, the Peer to Peer Finance Association predicts the total borrowed by businesses and consumers in this way by the end of 2015 will be £4 billion – almost double the figure from 2014.
 
With figures like these, when set against the post recession world of the high street banks being seen as reluctant lenders, it could be very easy to ask: “What’s not to like?” about P2P. In this article we examine peer to peer lending in a little more detail and suggest that if you need some advice on whether to use P2P or not, that we can help you make the right decision for your business.
 
What is Peer to Peer Lending?  
 
Peer to Peer Lending is a relatively new way of borrowing money over the internet. It first appeared in the UK in 2005, but most of its growth has come since the last recession of 2008/2009.
 
Also known as crowd-lending, peer to peer lending companies, such as Zopa and Funding Circle, aim to match borrowers (both companies and individuals) with savers who are searching for the best return they can get. Because there is no bank, building society or similar financial institution taking their cut, borrowers often get slightly lower rates and savers get slightly higher rates

Everyone wins with Peer to Peer Lending. Don't they?

On the face of it, P2P looks like an ideal scenario. Everyone wins, don’t they? Inevitably it’s not as straightforward as that. Borrowers are credit checked and rated, as you would expect, so not all applications are approved. However, as advisers to potential borrowers, it’s important to ask what the risks are with P2P?

What are the Risks With Peer to Peer Lending?
 
From a borrower’s point of view, you still have to repay the loan in full and on time, regardless of the good rate of interest you probably got. If you can’t, the consequences can be serious as the lender will still come after you under the terms and conditions of the loan.
 
Our experience is that if your business is in a strong and secure position, then Peer to Peer borrowing can be a good way of raising finance. However, we often find a lot of smaller companies aim to borrow money in this way not to grow but to paper over cracks that exist within the business, disguising a larger financial issue within the company. In other words, they are attracted to P2P because of lower interest rates, whereas what they really needed was help and advice on addressing the fundamental issues within their business first.
 
Look Out For The Small Print – Limited Liability Protection is no Protection at All
 
Most peer to peer lending is done on line. Because on line applications are typically quick and easy to make, it’s often just as easy to overlook the small print. If your credit history isn’t great – but just enough to get approved – the interest rate offered might well end up being higher than the headline rate. Alternatively you might well be asked to give a personal guarantee. Under these circumstances if you’re company can’t pay the loan back, you could lose your house, as the limited liability protection as the director of a limited company is no protection at all.
 
Is Peer to Peer Lending Right for You?
 
Our view, based on experience, is that for small loans over a short period of time, Peer to Peer lending is one of the easiest ways to secure funding.
 
There are risks, however, not least because of the relative ease of the online application, often undertaken without advice. There might well be something more serious going on with your business that needs turning around, in which case you could end up with a loan that was easily acquired but difficult or impossible to repay.
 
That’s where we come in. We’re not P2P lenders, but we do know about P2P and we can help you decide if P2P borrowing is right for you. If it is, we can put you in touch with the lender that is best suited to you. On the other hand, it might well be the case that you need the cash because you are struggling to pay debts (including HMRC Debt) in which case we will help you address that problem, rather than advising you to borrow money
 
So, if you are considering a peer to peer loan for your company, but aren’t sure if it’s the right way to go, then contact us or call us now on 0800 902 0123 for a FREE initial chat. We offer honest, pragmatic advice on the best options for you and your business.

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