Peer-to-peer lending - European Commission
Description
Peer-to-peer lending (sometimes called crowdlending), is a direct alternative to a bank loan with the difference that, instead of borrowing from a single source, companies can borrow directly from tens, sometimes hundreds, of individuals who are ready to lend.
Crowdlenders often bid for loans by offering an interest rate at which they would lend. Borrowers then accept loan offers at the lowest interest rate. Internet-based platforms are used to match lenders with borrowers.Due diligence is carried out for each loan request, as crowdfunding platforms have a duty to protect both businesses and investor interests.Platforms normally require financial accounts and a trading track record.
Key features
- Greater flexibility with interest rates: If your campaign is popular, investors may compete with each other to lend money to your business and offer better interest rates to secure the deal.
- You may get a loan when refused by a bank.
- Loan sizes can vary greatly so can cater for most needs. The minimum loan size is very small, which encourages a wide range of lenders to participate.
- Normally, the loan is repaid through direct debits to the platform, which distributes your repayments out to the lenders.
- Disclosure requirements are like that of a bank. Unlike the bank, they are made public to all crowdlenders.
- As with a traditional bank loan, you are legally required to repay the loan.
Is it for me?
| Equity crowdfunding | Rewards-based crowdfunding | Peer-to-peer lending | |
|---|---|---|---|
| Pre-trading | ✘ | ✓ | ✘ |
| Pre-profit | ✓ | ✓ | ✘ |
| Profitable growing business | ✓ | ✘ | ✓ |
| Established and steadily growing | ✓ | ✘ | ✓ |
| Established stable business | ✓ | ✘ | ✓ |
| Launching new product/service/brand | ✓ | ✓ | ✓ |
| Making acquisitions | ✘ | ✘ | ✓ |
| Expanding into new territories | ✓ | ✓ | ✓ |
| Investing in new facilities | ✘ | ✘ | ✓ |
| Looking to refinance | ✓ | ✘ | ✓ |
| In need of capital restructuring | ✓ | ✘ | ✓ |
Peer-to-peer lending - European Commission: Peer-to-peer lending - European Commission
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