The sites that offer the service of peer-to-peer lending sets the rate, terms of the transaction, and performs the transaction on behalf of both the lender and borrower. This additional interest income helps them to cover their losses on the riskier loans that default. That’s one of the great advantages of peer to peer lending: anyone can try it. 2. 3. There are Pros and Cons. MORE FREQUENT REPAYMENTS – While traditional bank loans typically require monthly payments, some alternative lending solutions require daily or weekly repayments. One of the premier advantages of these kinds of lending systems is that they provide quick returns that are well-above rates of inflation. Alternative lending has some distinct advantages for small business owners. As you might all aware of the fact that interest rates may vary from bank to bank, but in most cases, interest rates are quite higher. Advantages of P2P lending for investors. ADVANTAGES OF ALTERNATIVE LENDING. Less regulations + less paperwork = less time required to approve and finance a new loan. Restrict the User to Enter Personal Credentials. Larger corporations were the ones typically getting the loans that were made. For example, borrowers may be able to use real estate or outstanding invoices as collateral, making approvals easier. Your email address will not be published. This means that borrowers will need to have a strong understanding of their weekly cash flow needs to ensure that they can meet their repayment obligations on a timely basis. Now, let’s see some of the disadvantages of Peer-to-peer lending: The biggest setback of the P2P lending platform is that it only allows a small number of loans. 1. August 25, 2020. While alternative lending was around well before the Great Recession, 2008 was the year that new financing alternatives became critical, jumping to the forefront of small business financing. These are some of the advantages and disadvantages of taking out a P2P loan for your business today. Probably the biggest disadvantage of P2P lending is the risk of losing it all. The great recession had a negative impact on the availability of funding for small and new businesses across the UK.While recovery has progressed since 2008, liquidity in terms of loans from banks to SMEs is still recovering. The vast majority of these loans range from $1,000 – $50,000, with the most common loan in 2017 averaging $13,000. Here at Commenda, alternative lending is one of the financing tools that we use to help our clients raise the capital they need to support and grow their businesses. You can imagine the number of people wanting to borrow money. Here are a few of the Cons to consider. P2P lending has managed to gain much traction from an individual than the conventional bank and bonds. If you’re interested in scheduling time to see how we can help you get the funding that you need to grow, please click-on the contact us page on this website and send us your contact information along with a brief summary of your needs. P2P platforms have low overheads so they can afford to charge less interest. Three principles of Investment management. 4. To get a valuable return from your investment, you will need to lock the investment made in the platform for a certain period of time. As the whole process of borrowing and lending occurs digitally, so it consumes a lot less time than the conventional financial institution. Required fields are marked *. What’s Good About Peer to Peer Lending? Let me know your thoughts on this. However, these benefits do come with their own risk. P2P investment can be high risk and to alleviate this the platforms generally have a contingency plan to assist with any loans that have been defaulted. This means that a) there is less government oversight and b) they don’t have to process as much paperwork. P2P generally works by removing banks as lenders and instead, the platform matches you- the investor, with the borrowers. So there is a likelihood that lending money to borrowers with lower credit score may result in your money not coming back to you in time or not coming back at all. 3 min read. Contact Us. And once the borrower starts repaying the loan, that is when you will see the return in your investment. What are the Advantages and Disadvantages of Cryptocurrency Trading? Most alternative lenders are not banking institutions. Some P2P lending sites are specifically designed to address the requirements of the specific kind of borrower. This means that small and growing companies can get their money much quicker; a significant bonus for cash-strapped companies. Now that we know a bit about P2P lending and how it works, let’s take a look at the advantages and disadvantages of investing in P2P lending. There are a number of advantages to P2P lending for lenders, including the potential to grow your money quicker than with a traditional savings account, as well as an opportunity to diversify your investment portfolio. Peer-to-peer loans can offer quite a few advantages over other forms of borrowing, such as more competitive interest rates, flexible terms, and a fast and convenient online application process. The Advantages and Disadvantages of Peer to Peer Lending. SHORTER TERMS – A third way risk is mitigated for alternative lenders is by shortening the repayment period. Peer-to-peer platforms are often exceptional alternatives to traditional lenders. The default rate is expressed in percentages and higher the rate the greater the chances that your money will be lent out to people/businesses who may not pay them back. As the backbone of the British economy small successful businesses are finding it difficult to find growth capital. Whereas, there are other investment platforms such as PeerBerry who produce an average return rate of 12.5% per annum. Even though inflation is somewhat unstable and unpredictable, you can expect peer to peer investments to match it at the very least, while mostly being above the average rate. The demand for alternative non-bank funding sources is still in great demand today, five years later. for equipment financing, low-dollar line of credit, etc. 6300 Powers Ferry Road – Suite 600-231 – Atlanta, GA 30339 ~(800) 359-9121. All securities transactions conducted through an appropriately registered person associated with Commenda Securities, LLC, Let's have a look at these in more detail. In addition, the types of loan offerings are vast, ranging from crowdfunding to sale-leaseback programs to various types of government guaranteed SBA loans. With P2P an individual or a business can apply for a loan directly with investors instead of banks. MORE EXPENSIVE – Because alternative lending is used by small often unproven businesses, they represent a greater risk. This amount might be sufficient for an individual, but this amount isn’t adequate to address the requirement of large business organizations.