Peer-to-peer lending is the lending method to individuals and business, without going through a traditional financial institution. This lending method occurs online on peer-to-peer lending companies’ websites using various different lending platforms and credit checking tools.
How are these growing lending platforms helping startups?
Individuals & businesses can take a peer to peer loan to help finance their startup. Over 2,500 British companies have now received more than £135m of loans from in excess of 50,000 people in the UK through the ‘peer-to-peer’ lender. An example of a real business in the UK of how peer to peer lending has helped startup businesses, is Laura Morrish’s Slim Gyms:
In Cornwall, Laura Morrish (owner of leisure business ‘Slim Gyms’) was struggling to secure the funding she and her business needed. Her bank wouldn’t lend her the funding to build a new swimming complex because her business was under the remit of the leisure industry which currently has lending restrictions from high street banks. Laura was running out of options but had heard of a new peer to peer lending company setup in Cornwall and Devon called Folk2Folk. Peer to peer lending was something Laura didn’t know much about like many people as the concept is relatively new to the finance industry in the UK. Laura researched all about peer to peer lending and made her mind up to apply online on Folk2Folk’s website. After just 7 days, Laura had secured the funding she needed to build the new swimming complex.
Another example of how peer to peer lending is funding startups is Kennedy’s of Goswell Road Limited. They used Funding Circle to get a loan of £100,000 from 650 investors. Richard Pickering the director of the restaurant business, was able to grow the business to from one restaurant a number of restaurants across London within a year.
Both Folk2Folk and Funding Circle offer secure loans to businesses. They work by allowing members of the public invest across different business with a promise of a return on investment that is higher than the bank.
Why would a business choose a peer to peer fund instead of a bank?
Receiving bank loans are difficult to get, as seen in the case of Kennedy’s restaurant the a bank loan for a business is likely to be rejected. The peer to peer platform offer an alternative option from traditional lenders to help businesses grow.
- Roger Planes CEO of Glipho.com talks to the startup magazine. (thestartupmag.com)
- Startup Series two, Thinking about the Customer & Product (thestartupmag.com)
- Female entrepreneurs take the spotlight at prestigious business awards (thestartupmag.com)