P2P Loans, Lending & Finance
P2P Loans, Lending & Finance
Peer-to-peer platforms arrange loans from groups of individuals or organisations to business borrowers. Loan terms typically range from 6 months to 5 years and in some cases borrowers are not required to give a charge over personal or business assets as security. Loans are arranged both at fixed rates of interest and via auctions, where lenders compete to offer the most attractive borrowing rate to the company.
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The Informed Funding two-minute guide: P2P Loans
- How much can I borrow?
Different platforms set different limits but in general minimum borrowing amounts range from £5,000-£50,000 and maximum amounts from £250,000 to £3m-plus. Loans for property purchase or development tend to be larger, starting from around £100,000, largely because of the cost of the due diligence required.
- How long does it take?
This will depend on whether the loan is secured or unsecured. Secured lending can take several weeks to arrange because of the need to assess the assets to be used as collateral. It may be necessary to secure a waiver of an existing charge on the assets, for example granted to a bank, in order for the loan to go ahead. Unsecured lending can be arranged within a few days, provided that the borrower is able to come up with all the information the platform requires in the right format.
- What information do I need to provide?
You will need to submit a very similar set of information to what a bank would expect, including up to date management accounts, statutory accounts for earlier periods, details of existing liabilities, business forecasts, and a business plan. You may also need to provide details of any assets that are to be offered as security for the loan. After submitting your information, you should expect to be contacted by the P2P platform’s credit underwriting team for follow-up questions and clarifications.
- Can I get an unsecured loan?
Much P2P lending is advanced on an “unsecured” basis, meaning that the lenders do not take a charge over any of the assets of the business or over the directors’ personal assets such as their main residence. But borrowers are usually required to provide a personal guarantee that makes them liable to repay the loan (without putting their home on the line) if the company is unable to do so.
- How important is the company’s credit reference?
The company’s credit history will be one of the first things a P2P platform will check when the business approaches it to submit a loan request. If any issues show up on the credit check, the result is likely to range from a higher interest rate on any loan through to a refusal to go ahead with the loan request.
- What does it cost?
Arrangement fees vary between platforms but usually range from 2%-5% of the loan value, depending on the length of the term. Some platforms will also add an interest rate premium to your monthly repayments (1%-1.5% typically). There do not tend to be fees or penalties for paying off your loan early. There is also an application fee of a few hundred pounds which is refunded if your loan request is unsuccessful.
- How is the interest rate decided?
Interest rates are either fixed in advance or are determined by a “reverse auction” during which lenders compete to offer funds at the most attractive rate. However, some platforms, including Funding Circle, put loan requests into different risk categories and set minimum bid rates for each band, which ensure the interest rate on a loan cannot fall below a certain level.
- Need to know:
- The financial information you submit will be published on the platform so that anyone who is registered with the platform can assess whether they want to lend to your company
- Lenders can submit questions to the companies that are seeking a loan. The answers you provide will be published on the platform so that all lenders can benefit from the additional information
- Even if your loan request is accepted by the platform, there is no guarantee that your loan will attract enough bids to be fully funded. If you fall short of your target amount, the loan will not go ahead.
- Interest charged on a loan would be a deductible expense reducing the profit liable to corporation tax
- Where the company is paying interest to an individual it must withhold basic rate tax (20%) at source and account for this to HM Revenue and Customs (HMRC)
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