An alternative source of financing has been the new trend in the financial sector recently. There have been innovations that target different financial instruments that aims to simplify the process of borrowing and lending; thereby helping businesses achieve their financial goals.
A new source of financing, such as guarantor loan, has become increasingly popular especially after recession which resulted in the failure of various banks. Today, financial institutions have stopped letting risky individuals and ventures borrow money; thus, the large population falling outside of the traditional channels of finance.
Peer-to-peer sites are the famous one among these sources; as a matter of fact, many call them as the next-level banking. Let’s take a look at how they are being put up.
Equity-Based Crowdfunding as an Emerging Alternative to Business Funding
Equity-based crowdfunding generally pertains to business startups and new companies that generate funds by offering equity for money. In this scenario, the company generates funds through online database and doesn’t tap the primary capital industries. In this case, the crowdfunding platform serves as the “middle man” between the company and the investors.
Business Loan Financing via Peer-to-Peer Platforms
For many businesses, banks are their primary source to acquire loans or to generate a working capital. However, most banks would want collaterals for security which is difficult for small businesses, especially those who are in the service sector. In addition, banks often charge higher interest rates to smaller companies compared to big establishments; as they view their loans as too risky.
Online peer-to-peer sites aim to connect lenders and borrowers; thereby eliminating certain fees. Borrowers will then have a good option to increase their funds according to the needs of their business; most of the funding, do not require collaterals and offer much lower interest rates — lower than that of banks.
Personal Loans through Peer-to-Peer Platforms
One of the most popular products of Peer-to-Peer platforms is personal loans. These types of loans are usually used for various purposes including wedding, home renovation, vacation, and even paying for credit card balance. These loans are often good sources of liquidity. Their downside, however, is that they contain high interest rates and may cause you financial burdens. With Peer-to-Peer platforms, you can borrow money for personal use with much lower interest rates. Aside from that, it also does away with the costs of operations that most banks include in their service fees.
Those are just some of the platforms that are supported by these peer-to-peer sites. Note that interest rates vary depending on the type of loan you wish you acquire. Loans that are made available depend on the interested lenders as well.