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5 reasons peer-to-peer lending is ideal for start-ups

Trying to secure a loan from a High Street bank is daunting for any business. Find out how the alternative finance sector and P2P lending could help...

Figures from RBS released in January 2015 show peer-to-peer (P2P) lending to small businesses is increasing 200% per year.

This trend is also evident among start-ups which are often frustrated at the overly cautious, risk averse attitude from many mainstream business finance sources.

Here are five reasons why P2P lending is the fastest growing branch of the alternative finance sector.

1) P2P is a modern solution for business finance

Even if a business goes to a High Street bank with an idea for a great new product, and with a fantastic business plan, there’s a good chance that they will still experience the frustration felt by thousands of businesses in the UK as a result of the banks’ reluctance to lend. With online platforms, applying for a P2P loan is much easier and a refreshing change to all the red tape involved with mainstream lenders. It’s no surprise that the most forward-thinking entrepreneurs are turning instead to P2P lending which can provide the flexibility that start-ups require when it comes to granting loans.

2) P2P businesses understand start-ups

With P2P still relatively new to the market, alternative lenders in the space have faced many of the challenges which all start-ups must overcome. So, with a P2P lender, you’re more likely to be dealing with individuals who have a genuine and personal understanding of what start-ups' need, and that understanding will come from recent experience. It’s also worth noting that choosing a P2P loan doesn’t prevent a business from also securing finance from other sources if additional capital is required.

3) P2P is fast

Even those companies which are successful in securing finance from mainstream sources can find that the process takes so long it is not suitable in situations when a rapid source of finance is required. With P2P, on the other hand, the application process tends to be much faster, with some companies granting loans within 48-hours of the initial application. It’s this speed and efficiency which can make it ideal for many start-ups.

4) Unlock the value of your assets

Asset backed P2P lending is a fast growing branch of this sector, and can be the ideal solution for ‘asset rich, cash poor’ entrepreneurs. Companies such as asset-backed P2P specialists can offer loans secured against a variety of assets including (but not limited to) property, cars, jewellery, watches, fine wine and art, and aircraft. Loans are available up to 50% of the asset value, and up to a maximum of £500,000. The borrower’s asset is independently valued and most will have a guaranteed buy-back price. A loan-to-value figure is then based on this valuation. It’s a simple, straightforward and discrete process – there are no credit checks, but there are safeguards for both lender and borrower and loans can be granted in as little as 48-hours.

5) Cost effective

Borrowing from a P2P lender is a much better deal for start-ups. With many lenders there are no up-front costs and the loan is often payable at the end of the loan term. Businesses can borrow for as long as they wish and only pay interest for the time they have the loan.

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