Peer-to-peer lending (also known as P2P lending or crowdlending) has become a popular way for entrepreneurs to get their funding for their businesses. Funding a small business (especially a startup) can be quite difficult. Peer-to-peer lending offer entrepreneurs an alternative to traditional business financing that they may not have access to. Online lending platforms like Lending Club and Prosper give entrepreneurs the opportunity to borrow money to start or grow a business at a cheaper cost than a traditional financial institution. Before you can determine if peer-to-peer lending platforms are right way to get funding for your business, it’s important to understand how they work.
How Online Peer-to-Peer Lending Platforms Work
A peer-to-peer lender is different from a traditional bank or financial institution that lends money. Because peer-to-peer lenders use the internet to deliver their services (and not brick and mortar locations), they save a significant amount of money on their business overhead costs and increase their profit margins. Those savings can be transferred to borrowers who use their online lending platforms to apply for business or personal loans. These savings result in lower interest rates and overall better repayment terms for borrowers. This means you could get a better business loan offer via an online peer-to-peer lending platform, than you would from a traditional financial institution.
A Peer-to-Peer Lending Platform Can Work for Entrepreneurs Like You
To determine if a peer-to-peer lending platform will work for you, take the time to understand what it takes to get approved. Although peer-to-peer lending is considered alternative financing because it’s different from traditional borrowing and lending, you still have to be creditworthy to get approved. When you apply for any type of financing (i.e. unsecured loan, personal loan or business loan) via a peer-to-peer lender, they will check the following:
- Your Personal Credit Score
- Your Debt-to-Income Ratio
- Your Personal Income
- Your Business Income (if Applicable)
- Your Personal and/or Business Tax Returns
- If You Own Collateral (i.e. hard assets, etc)
How to Get Approved for a Business Loan from a Peer-to-Peer Lending Company
If you want to increase your chances of getting approved for business loan from a peer-to-peer lender, you should prepare yourself to meet their approval criteria. To prepare yourself to get approved you’ll need to understand what they expect of you. Peer-to-peer lenders will expect you to:
- Have a good personal credit score (above 600 is ideal).
- Be able to handle your debts (your income should be more than enough to cover your debts).
- Have a history of making timely payments towards your debts.
- Be able to provide proof of income.
- Be employed full time for at least 6 months.
- Be able to provide proof of ownership of assets that can be pledged as collateral.
- Be able to provide any supporting documentation they request at the time of application (this can include tax returns, bank statements, w-2s, personal financial statements, letters of reference, etc).
To find out what the peer-to-peer lender requires for approval, I suggest calling them before submitting an application online. Ask the peer-to-peer lender the following questions:
- What are the minimum credit score requirements to get approved?
- What are some of the reasons people are denied (in regards to credit)?
- What does my debt-to-income ratio need to be?
- What does my income need to be (for the amount of funding I am requesting)?
- Do I need pledge collateral? If so, what type of collateral?
- Do you avoid funding certain business industries (i.e. do you have restricted industries)?
- How long do I have to be in business to qualify for a business loan?
A Simpler Small Business Financing Alternative to Peer-to-Peer Lending
Although peer-to-peer lending should be explored by all entrepreneurs in need of funding, there are simpler ways to get funding for a business. All peer-to-peer lenders don’t offer a simple and quick application and funding process. As you can see from the information I outlined above, they sometimes ask for a lot of supporting documentation to be submitted with a loan application. At LenCred, we are fans of simple lending. This is why the LenCred team specializes in helping entrepreneurs and established small business owners obtain unsecured business credit.
Unsecured Business Credit is Simple to Obtain & an Easy Way to Fund Your Small Business
Unsecured business credit is arguably the simplest (and easiest) type of capital you can obtain to fund your small business. The credit requirements for approval are a bit more stringent than peer-to-peer lending, but you don’t have to worry about submitting a ton of documentation (outside of your credit application) nor will you be required to pledge collateral. All you need to qualify for (and obtain) unsecured business credit is a good personal credit history, good personal credit score, registered business with a TAX ID number, and in some cases, proof of income.
Obtain Unsecured Business Credit for Your Small Business – LenCred Can Help
Unsecured business credit can used for any business expense. This is all the more reason to choose unsecured business credit over peer-to-peer lending, (which may come with more restrictions on how you can use the funds). LenCred can help you obtain unsecured business credit for your startup or established small business if you (or someone you know) can meet the credit approval criteria. Unsecured business credit lenders will normally check your personal credit history to see if you have any personal credit cards in your name. They will also check to see if you have any delinquent or derogatory accounts reporting on your credit history.
The experts at LenCred can help you analyze your personal credit history before you apply so you will know whether or not you qualify for unsecured business credit. If you do qualify, your LenCred advisor will create a funding plan that outlines which lenders they will approach to secure lines of credit for your business. All of this can be done within 30 days (if you meet the required credit criteria). Submit a free pre-qualification application online now to get started.