Many new trends have popped up in the world of finance in recent years. Crowdfunding is one of the hottest of these trends right now, offering several advantages over traditional banking methods. One innovation to emerge from crowdfunding, peer to business lending is quickly becoming the next financial solution for small to midsize businesses who have gotten the cold shoulder from conventional banking sources.
Peer lending offers borrowers a much better interest rate than a traditional loan or line of credit, often as low as 10%. Lenders reap the benefits of higher returns on their investment than with other options. Peer to business lenders are able to avoid the costs of physical branches, capital reserves and high overhead borne by other financial institutions that have many employees and locations. Loan applications and funds transfers take less time, allowing borrowers and lenders quicker access to their money.
Peer to business lending companies and their customer base continue to grow, prompting some broker companies to create funds into which borrowers make a contribution. Money from this fund is used to recompense lenders if a borrower is unable to repay their loan, offering an additional safety net for investors.
Peer-to-business lenders choose for themselves whether they lend their money to safer borrowers, which offer lower return rates, or riskier clients paying higher returns. For this reason, the legal system treats peer-to-business lending as an investment, meaning repayment in the case of default is not guaranteed by the federal government.
For more information about crowdfunding, peer to business lending and other innovative financing techniques, contact us.