Peer to peer lending is an innovative type of commercial lending that connects borrowers and lenders directly. It is important to understand how the Peer to Peer lending process works and to ask yourself the right questions.
First, what is Peer to Peer (P2P) lending? Sometimes referred to as “social lending”, P2P lending occurs on online platforms that link borrowers with potential investors. These websites act as intermediaries between both parties. They perform the underwriting process and facilitate transactions between borrowers and lenders. This removes the middleman (i.e. the bank) from the lending process. Because of the savings and convenience involved, P2P financing is growing rapidly and is expected to be a 150 billion dollar industry by 2025. Considering this rapid growth, P2P lending may seem like an attractive option but you should be aware of the process and the advantages and disadvantages involved.
What does the P2P lending process entail? You the borrower sign up on a P2P lending site such as Lending Club or Prosper. After joining you submit a loan application, describing the amount you want to borrow and what you intend to use it for. The site then reviews this information, reviews your financial records and credit score and assigns your loan a certain risk factor. Once your application is approved by the site it is then posted. Potential investors then decide whether or not they are willing to fund your loan, how much they want to invest and what the terms the loan should be. Your proposal then remains on the site until it is fully funded or you withdraw your application.
What are the main benefits of P2P lending? Processing is much faster than traditional commercial lending. Because the process occurs online there is a minimal amount of paperwork involved. P2P platforms act as facilitators between individuals, both borrowers and investors and the lending process can potentially be more personal. Individual lenders may be willing to overlook a poor credit score if your application is compelling and well thought out. This may result in better terms and lower interest rates than you would receive through traditional financing.
But there are drawbacks in Peer-to-Peer lending that you should take into account.
Even though loan processing may be faster on P2P sites, it may take a considerable amount of time before your loan is fully financed. This mainly depends on the P2P platform and whether your application is auctioned. In certain circumstances you may be required to present additional documentation or take further steps to secure the funding you need. These additional steps can be time consuming and potentially complicate the process.
Considering Peer-to-Peer commercial lending is about asking yourself the right questions
Considering how the P2P lending process works you should first ask yourself how quickly do you need the money? Depending on your situation it can take a long time before your loan is fully financed. If you need your funding within a specific time frame, you may want to evaluate other financing options. Consider your financial standing as well. See the various loans your credit score qualifies you for on a variety of P2P lending sites. Compare this to other sources of financing and find the one that offers the best terms. However knowing how the peer-to-peer lending process works, as well as the benefits and risks will help you decide if it is the right financing option for you.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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