P2P Lending: Is a Peer-to-Peer Loan Right for Your Business?
P2P (short for peer-to-peer) lending refers to a model that connects investors with borrowers – both individuals and businesses – via an online marketplace. P2P lending is also commonly known as marketplace lending or “crowdlending.” It works by using technology to match borrowers and investors directly, eliminating the need for traditional creditors such as banks or other financial institutions to act as facilitators.Without the overhead costs associated with a middleman, P2P service providers are able to pass the savings on to end users (borrowers and investors). For borrowers, peer-to-peer lending boasts many of the same benefits offered by online lending platforms: fast, flexible access to business capital at competitive rates. Meanwhile, the P2P lending platform gains revenue from charging service fees on each loan.
Understanding P2P Lending in Canada
P2P lenders have existed for some time in the US (some states only) and abroad. Prominent examples in the US include Lending Club and Prosper, both of which launched in 2006 and paved the way for others. In Canada it has taken much longer for the P2P lending industry to take off. Until last year, peer-to-peer lending was not permitted by Canadian securities regulators. Following urging from the financial technology community calling for governments and regulators to support Canada’s budding P2P space (such as this open letter from the National Crowd Funding Association of Canada), the Ontario Securities Commission unveiled OSC LaunchPad, a program that works with Canada’s fintech industry to modernize regulation.
One prime example of companies collaborating with regulators is Vault Circle Inc., an affiliate of Lendified. Vault Circle is a digital lending investment firm that aims to connect accredited investors with short-term, high-yield small business loans in the form of investor notes. Vault Circle is working closely with the OSC to pave new pathways in fintech for Canadians.
Despite progress in the industry with regulatory bodies in certain provinces, borrowing options in Canada are still very limited. You will want to compare several P2P lending platforms before choosing a reputable option in good standing with regulators.
Is a P2P Loan Right for your Business?
When evaluating financing options for your small business, it’s important to weigh the pros and cons of various alternatives. Here are some factors to consider when deciding if P2P lending is right for your business:
- A P2P Loan is Still a Loan: Just like with any regulated loan, there are penalties for missed payments or defaulting, so be sure to understand the risks.
- A Unique Application Process: P2P lenders can offer a faster and less expensive alternative to traditional lenders.But if speed and ease of access is a top priority to you, keep in mind that online lenders like Lendified still offer small businesses a faster, simpler path to getting funded. P2P platforms typically require you to complete a longer application process. The length of time it takes to be approved (or denied) can vary from days to weeks. If approved, your business will be listed in the P2P lenders’ online marketplace for potential investors to view. Again, it could take days or weeks for your loan to get funded. In contrast, online lenders like Lendified only require you to answer a few easy questions and provides you with a decision immediately.
- Privacy in the Lending Marketplace: For some business owners who prefer that their loan application be kept confidential, it may be a drawback that certain information will be disclosed to all investors in the P2P platform’s marketplace. If the longer application process or privacy of your loan is a concern for your business, a same-day approval, fully confidential online loan may be a better option for you.
For small business owners in Canada there are more financing options than ever before. It’s important to do your research, know the alternatives and understand the risks and advantages associated with each. Here at Lendified, we’re advocates of Canada’s growing and evolving financial technology industry, and we support the growth and development of digital innovation in alternative finance. We are also advocates of Canadian small businesses and promote regulated, safe lending and borrowing practices as a win-win for all.
If you are interested in getting a loan offer from Lendified click the button below. Our application takes less than 10 minutes to complete and our loans are more affordable than other alternative financing options.