Businesses that had perhaps previously adopted a more defensive position on the borrowing front are now seeking alternative ways to bank finance to achieve their funding requirements, and a sector that is experiencing increased interest is Peer-to-peer (P2P) lending and Crowdfunding.
What is Peer-to-peer lending?
Peer-to-peer lending is the practice of online auction-based money lending to unrelated individuals or businesses, “peers”, without going through traditional financial intermediaries such as a bank or other financial institutions. Peer-to-peer lending providers facilitate the provision of loans to businesses and property developers through a network of investors.
Why it is beneficial to both lenders and borrowers?
Lenders can earn more from their investments than they would from a high street saving account, often between 6% and 13%. Lenders normally seek some security for their lending as they are not covered by the Financial Services Compensation Scheme. Peer-to-peer lenders include; Assetz Capital, Funding Circle and Thincats.
Borrowers may be able to receive funds that they would not be able to obtain from high street banks and often at more favourable rates. Funds can also be obtained quite quickly once full details have been supplied to the loan provider. Funds can be used for growing the business, working capital, buying an asset or developing a property.
What is Crowdfunding?
Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money. Those seeking funds will set up a profile of their project on a website such as those run by members of the UK Crowdfunding Association. They can then use social media, alongside traditional networks of friends, family and work acquaintances, to raise money. For example:
People invest in an opportunity in exchange for equity. Money is exchanged for a share, or a small stake in the business, project or venture. As with other types of shares, apart from community shares, if it is successful the value goes up. If not, the value goes down.
Typical Crowdfunding lenders are CrowdCube and SeedRS.
These alternative providers to bank finance offer excellent choices for businesses looking to grow and manage their cashflow. Both peer-to-peer finance and crowdfunding offer a fast, simple and flexible way to borrow money, it’s just a case of deciding which one best suits your business needs.
With any financial provider it is important to ensure you have a clear understanding of what is required and expected. We would recommend that you contact our team of highly experienced advisors to discuss your needs in more detail and establish the best long term option for you.