New ways to raise business finance - peer to peer lending

SMEs looking to raise finance have traditionally been tied to bank funding, but recently there have been significant changes.

SMEs looking to raise finance have traditionally been tied to bank funding, but recently there have been significant changes.

Peer to peer (P2P) business lending is one new way of raising finance. It can be a direct alternative to a bank loan, and currently over 35,000 UK businesses have P2P loans, according to data published by the P2P Finance Association. Typically investors lend small parts of individual loans, with the online system making it easy for lenders to participate across multiple loans. Borrowers can access loans ranging from a few thousand pounds up to several million.

P2P lending platforms require online applications, each with its own qualifying criteria. Borrowers usually need a trading track record and would have to submit financial accounts. Whilst interest rates may be higher than bank finance, P2P can have the edge in terms of speedy decision-making.

There are safeguards and guidelines: the Financial Conduct Authority (FCA) regulates P2P. P2P loans can be held in a new Individual Savings Account – the ‘Innovative Finance ISA’ possibly making P2P even more attractive to lenders. Information on P2P lending and links to lenders is available at http://p2pfa.info