Small businesses are the backbone of any economy, but it is not a hidden fact that they often face challenges in getting the capital they need to grow and thrive. But now that the world is changing and new avenues have been created, Peer-to-peer (P2P) lending has emerged as an alternative solution to these fund issues faced by small businesses. P2P lending offers an alternative to traditional bank loans and makes for a perfect option for small business growth. So, with this guide, we would share an insight into how small businesses can benefit from peer-to-peer lending. We would explore how it helps in empowering entrepreneurs.
What is Peer-to-Peer Lending?
Peer-to-peer (P2P) lending is a financial technology that connects borrowers directly with lenders through an online platform like 13Karat, without any involvement of traditional banks and financial institutions. P2P lending allows individuals or businesses to borrow money from multiple lenders at competitive interest rates. As there are no banks and institutions involved, the process is quite simple. Sign up, create an account, submit the loan application, and get the loan amount in your bank account instantly upon approval.
Benefits Of P2P Lending for Small Businesses
Access to Funds
One of the biggest advantages small businesses can get from P2P lending is the access to capital. Small businesses often struggle to get loans from traditional banks due to strict requirements and lengthy approval processes. However, P2P lending platforms connect borrowers directly with investors and this helps in bypassing the need for banks. This direct connection allows small businesses to access capital faster and easily than through traditional channels. Whether it is for startup findings or expansion plans, P2P lending provides small businesses with the financial resources they need to thrive.
Empowerment
P2P lending is all about empowering finance and it cannot be denied. P2P lending helps entrepreneurs by giving them control over their financing options. Instead of relying solely on banks or venture capitalists, small business owners can now pitch their ideas directly to a community of individual investors. This helps them feel powerful and allows them to negotiate terms that work best for their businesses. Moreover, P2P lending opens up opportunities for entrepreneurs who do not have traditional funding sources, such as those with limited credit history.
Flexible Terms
Unlike traditional bank loans that often come with rigid terms and conditions, P2P lending offers more flexibility. With this, if you are someone who is looking to borrow funds, you can easily negotiate terms directly with investors. This allows for personalised loan agreements as per the specific needs of your businesses. You can also have flexible interest rates, repayment schedules, and collateral requirements.
Faster Approval Process
One of the most significant advantages of P2P lending for small businesses is the speed of the approval process. Unlike banks, which usually take weeks or even months to review loan applications, P2P lending platforms like 13Karat usually approve loans much faster. This rapid approval process allows small businesses to grab opportunities quickly, whether it’s launching a new product, expanding into new markets, or covering unexpected expenses.
Diverse Funding Sources
Another major benefit of P2P lending is that it opens up a diverse range of funding sources for small businesses. Instead of relying solely on traditional lenders, businesses can access funds from a broad network of investors. This diversity is what reduces dependence on any single source of funding and thereby, reduces the risk. Also, P2P lending allows small businesses to tap into niche markets and communities of investors who may have a personal connection to their business or industry.
Lower Costs
In many cases, P2P lending offers lower borrowing costs compared to traditional bank loans. Without the overhead costs, P2P lending platforms can pass on these savings to borrowers in the form of lower interest rates and fees. This affordability makes P2P lending a perfect option for small businesses looking to minimise their financing costs and maximise their returns. And by reducing the financial burden of borrowing, P2P lending enables small businesses to allocate more resources for growth initiatives and long-term sustainability.
Also Read: Benefits of P2P Lending for Investors and Borrowers
How 13Karat Can Help You With Investments
13Karat offers specific investment plans to suit different needs. The 6-month investment plan offers returns of up to 13% per annum. On the other hand, the 3-month investment plan offers a shorter-term investment with returns of up to 12% per annum.
