Peer-to-business (P2B) lending is a subsection of the larger peer-to-peer lending and crowdfunding environments. In P2B lending, a business, usually a business classed as a small to medium enterprise or else a startup, takes the place of the borrower while the consumer or investor can choose which of these businesses to invest in. Many P2B loans do not require borrowers to extend collateral towards borrowing, and most lenders are happy to collect interest on the loans extended.
These investments are made through intermediary companies which act as vetting agencies for both business and consumer. These platforms then offer the investors the chance to participate in the market in a new way and offer the businesses access to new sources of capital they may be unable to find or raise elsewhere.
Through many of the platforms, businesses - or in this case borrowers - are able to post the amount they wish to borrow and the interest rate they intend to pay on the website. The borrowers can also choose to include their financial information to give lenders more details to consider when deciding what projects to fund.
These platforms have gained popularity due to their higher acceptance of borrowers in credit situations which are deemed unfit by traditional credit facilities. Through P2B platforms, borrowers are offered a chance to fund their businesses. Although the loans tend to be smaller and have shorter term, due to the lenders preference for greater liquidity over extended periods, borrowers can find the amounts they wish to borrow at lower interest rates than traditional credit facilities offer.
Research into P2B lending has highlighted key behaviors of lender. These generally include:
- Preference for shorter loan terms for greater liquidity
- Preference for more detail financial information of borrowers
- Preference for smaller loan amounts
- Preference for loans others have invested in
This final behavior, a kind of herd behavior, has been observed in lending platforms. They have shown that loans which show a 1% increase in bids increase the likelihood of additional requests by 15%.
Peer-to-business lending funding model is unavailable in the United States due to securities regulations. Which means, unlike European countries where peer-to-business platforms like Funding Circle can provide direct funding solutions to businesses, businesses in the United States can access peer-to-peer lending platform funding but only as individuals. In this case, business owners can apply for consumer loans through peer-to-peer lending platforms which they can in turn apply to their business needs.
In some cases, peer-to-peer lending platforms in the United States can offer commercial loans, but these are backed exclusively by institutional or accredited investors.
