How small businesses are utilising P2P lending to scale fasterIt can be hard for small businesses and startups to get ahead, with fluctuating project cycles, seasonal slumps and late payments causing cash flow strain. With 82% of unsuccessful small businesses attributing their failure to cash flow issues, the importance of appropriate financing becomes strikingly apparent. Source: pixabay.com Peer-to-peer lending (or P2P lending) is emerging as a viable solution, with the number of P2P loans growing by 10.5% year-on-year. As a fintech consultant, I’ve seen many of my clients reap the benefits of P2P loans in recent years. At its essence, P2P lending is a type of financing that allows an individual to obtain a loan from another individual through a dedicated platform. This eliminates the middleman – typically a bank or lending institution – with individual investors pooling together small sums of money instead of supplying the full amount of the loan in order to mitigate their risk. The businesses that I work with have found P2P loans to be an especially attractive option, as they can offer sustainable cash flow, scalability, and ultimately, a successful and resilient business. Some leading lenders to keep an eye on include the global platforms FastInvest, Mintos and PeerBerry, and the regional platforms Rainfin, Peerfin and Ovamba. The latter three are available in South Africa. Let’s take a closer look at how P2P loans help entrepreneurs develop sustainable, scalable and successful businesses. Why small businesses are flocking to P2P lending Small businesses can use P2P loans as a form of gap funding, cash flowing the business and paying salaries while they wait for the next funding cycle to begin or for a contract to commence. P2P loans can also be used to grow your business, allowing you to expand into new markets, purchase equipment, or otherwise invest in the development of your business. The specific pain points that P2P loans can alleviate for small businesses include the following.
The P2P lending processWhile not as extensive as a traditional loan, the P2P lending process still follows certain protocol and requires particular documentation. Typically, the prospective borrower will need to provide bank statements. The borrower will also need to detail their plans for the loan and their vision for their business as a whole. This information is then uploaded onto the P2P lending platform, with investors being able to contribute as they desire. From my perspective, P2P lending fills a gap in the market, allowing small businesses to sustain themselves and hopefully grow, while minimizing friction. As with all financial products, it is important to carefully consider the suitability of P2P loans for your business, and to weigh up other options as well. About the authorSadie Williamson is the founder of Williamson Fintech Consulting. Her many years of experience in FinTech consulting have inspired her passion for digital payments and cryptocurrency investments. |