Over recent years, one of the most talked-about methods of funding your business has been what is called “Peer-To-Peer” business finance – often abbreviated to “P2P”.
Here this method of business finance will be explored and explained.
Very many businesses, from the smallest to the largest, need to raise funding from time to time.
In the old days, this typically involved heading down to your local bank branch as a supplicant and hoping your bank manager happened to be in a good mood as you were making your case! Of course, those days are largely long gone, and there is now extensive competition and a wide variety of options for securing business finance.
Many of these are online and assuming the case makes sound business sense, and funds can be made available very quickly.
To some extent, this innovation owes its existence to the internet.
It enables a company in need of finance to apply for such to a wide number of private individual investors. Essentially the case is posted on to a website, and the public at large can decide whether or not they wish to invest in the proposition and if they do, how much and over what period of time.
For the potential borrower, this has a number of advantages:
- it may mean that they are less dependent upon a single benevolent corporate-type investor;
- it is relatively easy to operate and mostly devoid of the massive bureaucracy that can still sometimes arise with bank loan applications;
- the cost of funding might typically be lower than that available from some sources of conventional business finance;
- it is, arguably, quite a “trendy” method of borrowing and therefore the domain’s culture may contain a higher degree of across-the-board optimism from investors than might be the case through other more staid channels.
Of course, there is usually a flip side – and that needs to be considered too:
- there is no guarantee that you will secure your funding and the results can be rather more unpredictable than might be the case with what might be termed “curated” applications managed through a specialist provider;
- public investors can, at times, be fickle.
Nevertheless, this is an interesting potential route for business finance which should be explored.
How it works
Typically you will need to contact an intermediary who can offer P2P business case syndication.
Essentially that means they’ll look at your case and decide whether or not it has a certain minimum credibility and likelihood of success. If that is perceived to be the situation, your request will be added to the system and investors will be invited to join in if they wish.
There may be fees and commissions associated with using these sorts of central services, and this needs to be examined carefully in terms of assessing the cost-attractiveness of this approach.
There is a risk that this type of funding is perceived to be “easy”.
In fact, your proposition will need to be soundly produced and contain some compelling business metrics. This is typically only available to private limited companies and associated partnerships.
Remember that if your business case doesn’t make sense or appears to have an air of desperation around it, such as business retrieval, it may not even make it to widespread syndication, and even if it does, it may not attract investors.
It might be worth contacting a specialist in business finance to discuss this and other related options.