Using Peer-to-Peer Lending As A Method For Startup Growth

From Peter Daisyme on Forbes:

“In advising all types of startups and established small businesses, I find that many are seeking some additional funding that is too small for an angel investor to get a return for their effort. Banks also think it’s not worth their time. However, the amount necessary may be too much to finance on a credit card, or perhaps the entrepreneur doesn’t want to use that method. That’s where peer-to-peer (P2P) lending is working to fill that lending gap and why I recommend considering this lending alternative. I find that this model may be a solution for many small businesses that are struggling with just tapping smaller funding amounts.

Some of the immediate benefits of a P2P loan is that no collateral is required. Lower interest rates tend to be available, depending on your credit score, loan amount and loan term, because the peer-to-peer lenders operate with low overhead. You can repay the loan early and not have to contend with any prepayment penalties. Since it is an online lending environment, you’ll also enjoy faster approval and no paperwork except for a few online forms and a digital signature.

Once you borrow and repay the loan, there’s an opportunity to continue using your P2P lending connection to tap additional funds later on whenever you need additional capital. That accessibility can help your business goals and deliver quickly rather than leading to extra time pounding the pavement for money. ”

For start-ups that have yet to build strong financials or establish a strong credit record, P2P financing serves as an alternative funding method that can greatly improve the cash flows and hence business growth. Some additional advantages include faster approval process as well as reduced paper work, which make P2P financing an even more attractive option.

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Growing appetite for private credit amongst HNWIs and family offices

From Ben Rossi on What Investment:

“Faced with volatility and uncertainty in public markets, investors have increasingly turned to alternative asset classes for uncorrelated returns and, particularly, income. There is growing appetite for private credit among high net worth individuals (HNWIs) and family offices (FOs), with some investors now committing some 11% of their investable funds to this asset class. With interest rates remaining at an unprecedented low and equity markets continuing to fluctuate, we anticipate that this trend is set to remain.

The growing popularity of private credit via a range of funding instruments including specialist investment trusts, funds, Peer2Peer platforms (P2P) and secured loan notes, lies primarily in the strength of the risk-adjusted return. As an alternative asset class not only does it offer diversification and steady cash flows, it is also uncorrelated to the stock markets whilst generating a significantly higher yield than the traditional fixed-income markets. Whereas annual yields on publically traded corporate bonds currently generate yields of two to five percent, typical interest rates for private credit transactions can easily double this. ”

P2P lending as a investment product offers not only high returns to the investors, but also diversification benefits when allocated to a balanced investment portfolio. With the emergence of more HNWIs and family offices as a macro trend, P2P lending volume is expected to experience exponential growth and remain one of the most attractive alternative asset classes.

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