Role of P2P Lending in Small Business Financing

P2P lending is a kind of lending that could be utilized for small business financing and this sort of a lending is a transaction between two individuals. Many of you are using P2P lending as an effective way of getting money for starting a new business. Often while looking for financing P2P lending is overlooked by many of you. Here are few points about P2P lending that could be a good way of financing your small business.

Peer-to-Peer Lending

More often than not, people pursue peer-to-peer lending as their loan requests have been declined by traditional lenders. Conventional lenders could prove to be really very strict and finicky when they are sitting down to approve a new small business loan.
A conventional lender would not be interested in talking to you if you do not have a successful and sound business history. They would be looking for some kind of collateral like car or house that they could use as security for your loan.

A lender would certainly stay away from working with you if you have a poor credit score. In case of P2P lending, you get the opportunity to work with a really large network of lenders with different lending regulations and standards. As such, there is tremendous scope for getting approved for all types of loans.

How Does It Work?

The majority of P2P lending is actually facilitated via P2P lending websites. This sort of a business makes it plausible for individuals who are in need of money and those who want to invest or lend their money towards a social or community cause to come together. The sites would be operating simply as conduits for bringing two parties together. The lenders and the borrowers get a common platform.

You may submit a proposal for a loan to the website. The P2P website would be verifying your credit report and then provide a summary of your credit history to the potential lenders bidding on your specific loan proposal.

The website would be advertising all this to the available lenders. Then the lenders would initiate bidding on your project. The bidding process usually starts at a higher interest rate and eventually, bidders would bid lower turn by turn. Once the bidder is determined, the P2P website will take the loan amount from the lender, and transfer it to your bank account. Every month, you being the borrower, would require making payments to pay back the money to the lender.


A majority of entrepreneurs are interested in this type of financing as it is definitely more conducive to facilitating finances to small businesses. The loan terms are flexible and even the approval process is a lot simpler and easier. Entrepreneurs believe that loan application at a conventional lending institution is far more cumbersome and stressful.


While considering the use of peer-to-peer lending for your small business financing, you must understand that their interest rates would be higher as compared to the conventional lender. So, you need to take the right decision for business success.


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