Peer-to-peer lending has been around for a while and many small business owners from all over the globe are using it to grow and prosper. Having no chance to get cheap loans from banks entrepreneurs are addressing Internet with this problem.So you can now borrow money online at low interest rates for both personal and business needs. But what are the best practices for peer-to-peer lending? How to make peer lending work for you? Let’s find out how to choose the most effective peer lending site out of the vast variety of platforms that are out there to best answer your specific needs.
Here are the top five things that peer-to-peer lending is the perfect solution for:
1. Micro loans – micro credits (equivalent of several hundred US dollars) to help starting small business or keep it going.
2. Personal loans – wedding, car maintenance, unexpected expenditures, debt consolidation and other things a person might need money for.
3. Refinance credit card debt – if your bank’s interest rate is growing why not finding cheaper credit elsewhere.
4. Business purposes – the lineup of entrepreneurs here is highly diverse: innovative start ups, new tech companies, high-risk-high-margin ventures along with not so sexy small and mid-sized businesses that need additional funding to expand their existing operations.
5. Creative projects – films, music albums, designed goods and other things that cannot be business planned in a conventional way.
Of course the listed above are more like categories. But in order to choose the peer-to-peer lending site that will work perfectly for you, you need to decide which group you belong to. Once that is done, find the best site in your category to answer your needs. With peer lending the size of the community is vital to the success of every single borrower. So joining the biggest platforms (or the ones that grow at the highest speed) is a good strategy. And here is the list of sites that enjoy the leading positions in each category:
Kiva.org is all about micro finance. Actually these two words are almost synonyms right now. According to the site’s statistics the average loan size is $381.85 (for the date of publication). So if that little is enough for your business to continue its pace, than going anywhere else would be just a waste of time.
Prosper.com is another website I am extremely positive about. They claim to have more than 218,000,000USD in personal loans funded. And that is indeed a thing to lean for. Prosper.com would ask you certain questions to determine your reliability as a borrower (called Prosper score) and your loan’s interest rate will depend on that. The loan requests might be within 2,000-25,000USD. And the cost of loans might vary greatly. There are borrower rates from 8.49% (and even 6.55%!) to 31.99% (for the start the home business). The site is eligible to US citizens and permanent residents only.
Lendingclub.com used to offer loans up to 25,000USD but has recently increased the upper limit to 35,000USD. It has funded 223,623,400USD in loans as for the date of publication (only 6.06% or 1,143 were for business purposes) and the site’s statistics says that 63.9% of these loans were directed to refinance credit card debt. Lendingclub.com is also only eligible to U.S. citizens and permanent residents.
Choosing the web platform which aims specifically at connecting entrepreneurs and investors is quite a challenge. There are no market leaders in this field and every website applies its own strategies and policies. In most cases you will be asked to pay a membership fee to join the site and be introduced to investors listed there. Or you can join for free but will be asked to pay once you’d like to contact other site members.
But there are nice exceptions: at Invest Engine you can create your entrepreneur profile and write messages to other community members absolutely free of charge. Moreover, you’ll get access to business plan software which is one of the best in the industry and again is free to use. So you’ll be able to describe your business project in a professional way, attract quality investors from Invest Engine community or download you business plan in PDF file and distribute it among your off-site contacts.
And finally, if you are looking for money for your creative project (such as movie, theatre performance, photography exhibition or music album), sites like IndieGoGo and Kickstarter should be put on your radar. They are bright and interactive. And the community “patrons” (those who back projects at these sites) are specifically searching for interesting creative projects to fund. The charges are moderate: IndieGoGo will take 4% fee (9% for underfunded loan) plus you’ll have to pay 3% third party fee. At Kickstarter every project must be fully funded before its time expires. If not, the borrower gets nothing. Kickstarter will apply a 5% fee to the funds raised successfully.
NOW WATCH: Ideas videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.