What is P2P lending? Guide to crowdlending and funding from TFG

We speak to Sophie at FundingKnight for an overview of peer-to-peer lending.

Peer-to-peer lending – also known as P2P, crowdlending, and marketplace lending – is a way to access finance for individuals and businesses who often have been turned down elsewhere.

Being refused by a bank doesn’t always mean the borrower is a risky proposition. Tighter regulations and legacy issues mean banks are reluctant to lend to certain types of businesses, such as SMEs, even if the company is profitable. Businesses without bricks and mortar assets or with variable cashflow are also less likely to get funded by banks.

Peer-to-peer is able to consider loan requests without these limitations. According to NESTA’s 2014 alternative finance report, 33% of peer-to-peer business borrowers believed they would not have been able to get finance elsewhere. Loans can be provided for almost any purpose, but the most common reasons include stock purchase, working capital, expansion and marketing.

Peer-to-peer is also much quicker. Bank finance can take up to 3 months from the start of an application to actually receiving the funds. With peer-to-peer a loan application can sometimes be turned around in under a week.

What is Peer-to-Peer Lending?

How to choose a peer to peer lender

There are a number of peer-to-peer business loan providers available and they vary widely, for example the size and duration of loan, credit modelling system, and the way the loans are actually financed. There are four main things you should look for in a provider.

1. 1. Transparency. While peer-to-peer is generally more open about its costs and charges than banks, some will still try to apply additional or complex charges. The amount of information available online is a good indication of their policy.
   2. Age. Peer-to-peer is still too young for its track record to have real statistical validity, but the longer the platform has been running the better. The loan book will have had more time to mature, their processes will be more refined, and the investor community will be more diverse.
   3. Association. While peer-to-peer is regulated in the UK by the FCA, industry bodies such as the UK Crowdfunding Association (UKCFA) and Peer-to-Peer Finance Association (P2PFA) have their own sets of standards which members have to adhere to.
   4. Customer service. Many people regret the move to automated customer service. A named point of contact to keep you updated and answer any questions should be available as standard.

About the Author

Article written by Sophie Koenig, Content Marketing Executive at FundingKnight, one of the UK’s fastest-growing peer-to-peer platforms.

Read our review on FundingKnight here.