While the economy seems to be lumbering steadily toward recovery, one area that has been consistently slow to return to pre-recession levels is lending, with individuals and small businesses among the hardest hit borrowers. But there's good news: if you're looking to find business loans to grow your IT business, you may be able to do it even if the banks send you away, thanks to peer to peer lending. (For more tips on growing your IT business, check out our Small Business Resources section.)
Peer to peer (or P2P lending, as it's sometimes called) isn't brand new, but it's gaining steam in recent months as major corporate investors hop onboard (including, notably, Google earlier this month).
Here's how it works:
- Lenders and borrowers register online to join a peer to peer lending network.
- Borrowers submit loan applications, which identify how much money they'd like to borrow, what they plan to use the funds for ("business" is an option), and how their credit is.
- Site administrators match borrowers with lenders according to risk profile and other factors.
The online-only model of peer to peer lending eliminates a lot of the inefficiencies of traditional banking, which makes transactions more financially rewarding for everyone: lower interest rates for borrowers, and higher returns for lenders.
Could Peer to Peer Lending Help Grow Your IT Firm?
So how can you tell if peer to peer lending is a good choice for your financing needs? It might be time to turn to an online lending site like Prosper or Lending Club if you…
- Need a relatively small amount of capital: Peer to peer lenders are by definition smaller than major banks, which means that borrowers can access less money per loan than they could through a traditional bank. A typical per-loan maximum is $35,000, which means that peer to peer loans won't be right for every kind of growth project you have in mind. If you're in a situation where a small improvement could make a big difference to your growth, however (for example, if you need to hire a part-time assistant to handle paperwork so you can take on more programming projects), peer to peer lending might make sense.
- Have had trouble borrowing money from traditional lenders: If banks and credit unions have turned you away (or you know based on their lending criteria that they're likely to do so), peer to peer lending may be a great place to turn. It keeps things official so you don't have to put friends or family members in the uncomfortable position of being your source of cash.
- Don't mind doing everything online: The good news about conducting all your transactions online is that it's convenient. And if you own an IT business, you're probably pretty comfortable operating exclusively on the web. Even better? Now that these peer to peer lending sites have been around a while, the uncertainties associated with new companies have mostly dissipated. And with big players like Google endorsing the sites via major investments, peer to peer lenders are becoming an even safer bet.
Writtten by Brenna Lemieux - check her out at Google+ or Twitter