As a small business owner, you have several options when you need funds for your business. Traditional low-interest bank loans are often the first option for many entrepreneurs. However, not everyone is eligible for a bank loan. If this is your case, you can use an alternative online lender or a relatively new loan method: loans between individuals.
While loans between individuals have gained popularity in recent years, they are aimed primarily at those seeking personal loans. However, some private lenders also offer commercial loans. Some of the most popular companies in this category are Lending Club , Funding Circle and Prosper .
But, should you resort to loans between individuals? Or is it better to opt for another alternative? Before answering these questions, let’s understand how loans between individuals work.
What are loans between individuals?
A loan usually involves a financial institution such as a bank or a credit union that advances funds to a borrower. But in a loan between individuals, the relationship is established directly between the borrower and an individual. The service that facilitates loans between individuals (also known as P2P loans, from English Peer-to-Peer ) acts as an intermediary between both parties.
How does that facilitate the process? Why eliminate the financial institution from the equation? Doing this provides benefits for both the borrower and the lender. Without the intervention of a bank involved, borrowers can receive funds at a lower rate, while investors (people who are advancing cash) can obtain a higher return.
At least, that’s how it should work. But we must bear in mind that the loan service between individuals, acting as an intermediary charges a closing fee, which could be a significant amount. For example, Lending Club, a popular P2P lender, requires borrowers to pay a startup fee that ranges from 3.49% to 7.99%. With a loan of $ 30,000, the rate could be up to $ 2,400.
To understand this type of financing in detail, first read what loans between individuals are .
Advantages of loans between individuals
⇨ The whole process is done online. Usually, you don’t have to send any paper documents.
⇨ Funds may be available in a matter of days. You do not have to go through a long approval period.
⇨ Most P2P loans do not carry a penalty for prepayment.
⇨ You can usually use the funds in any way you like. Of course, the use is restricted for commercial purposes.
⇨ Borrowers rejected by banks may discover that they can obtain a P2P loan, being more flexible with their requirements.
Disadvantages of loans between individuals
⇨ If you have bad credit, you will have to pay a high interest rate.
⇨ The amount of a loan between individuals is quite limited.
⇨ Closing rates can increase the total cost of the loan.
⇨ Delaying your loan payments can hurt your credit score.
⇨ Some private loan service websites require you to pay various fees in addition to the interest you are already paying. You could be informed about these hidden rates only after taking the loan.
⇨ As a borrower, you could be subject to a scam. A fraudulent service company between individuals may ask you to pay the closing fee and then disappear.
So, is it a good idea to apply for a loan on a private loan service website? Or is a traditional loan for a small business still a better idea?
Loans between individuals and traditional commercial loans: comparison
Compare the main characteristics of loans between individuals and traditional commercial loans offered by banks:
|Loans between individuals||Traditional Commercial Loans|
|Interest rate||If you have a good credit score, it is possible to get a good rate||They are usually lower|
|Loan limit||Most P2P loans are for small amounts.||Banks have higher limits. If you are eligible, you could borrow everything you need|
|Speed of approval||You can receive the funds in a few days||Normally long process. It may take weeks to receive the funds|
|Probability of obtaining a loan with bad credit||it’s possible||Quite unlikely|
|Use of funds||Borrowers can decide how to use the funds||The lender will specify how to use the funds|
Here is another comparison of the two types of loan:
Loans between individuals and traditional commercial loans
One of the biggest disadvantages of a commercial loan is that the approval procedure can be cumbersome. You may have to submit several paper documents and wait weeks to get a response from the bank. If you need a quick response, a loan from Minekilos Financial, an alternative online lender, might be your best option.
In fact, Minekilos Financial has fewer loan requirements than other lenders .
Next, let’s compare loans between individuals with alternative loans for small businesses.
Loans between individuals and alternative commercial loans: comparison
Alternative lenders can be a good option for many small business owners. Credit requirements are usually more flexible than those of a traditional bank. Alternative lenders also have another significant advantage: they can process a loan application very quickly.
This is how both forms of financing compare:
|Loans between individuals||Alternative Commercial Loans|
|Loan Amount||The amount could be less than what you need||The amount may be greater.|
|Interest rate||If you have bad credit, you could pay a high interest rate||Normally lower rates than in P2P loans|
|Required documents||Minima. But you might have to present a business plan or justify why you need the funds.||The lender will ask you for financial statements and bank statements|
|Time to get the funds||It is possible to get quick approval||Quick approval|
|Use of funds||Borrowers can choose||You must use the funds for your company|
Here is another comparison of the two types of loan:
Loans between individuals and alternative commercial loans
For most entrepreneurs, an alternative business loan is the best way to obtain funds for your company. Borrowing from a lender like Minekilos Financial can provide you with the cash you need in a very short time and with a very simple approval process. We invite you to invest a few minutes of your time to see in detail how the commercial loans of Minekilos Financial work .
Minekilos Financial: your best option
At Minekilos Financial, we will do our best to provide you with access to the capital you need for your small business. We are faithful to our motto: “We do not close the doors to any business”, and that is why our loans will offer you a series of advantages that you will not find in other lenders:
Our bilingual loan specialists will guide you at home step of the loan process
⇨ Like loans between individuals, our entire process is carried out online, in a totally safe and effective way. This gives you quick access to funds , which can be reduced up to two days. But unlike loans between individuals, we offer you many more advantages.
⇨ The amounts of our small business loans range between $ 5,000 and $ 400,000, an amount greater than you could possibly get with a loan between individuals, and are available at monthly interest rates between 1% and 2.5%.
⇨ You will only have to pay a closing fee. There is no other fee and your monthly payments will be fixed and will never change. There are also no penalties for prepayment if you decide to pay off your loan in advance.
⇨ Our requirements are very flexible. For example , you do not need a Social Security Number to apply for a loan. With your ITIN is enough.
⇨ Nor do we need you to present any type of guarantee to secure your loan.
⇨ You don’t need to have a minimum credit score (FICO), and you don’t need a credit history.
⇨ After nine months of making your payments on time, you can get a new loan for a larger amount and at a lower interest rate.
⇨ We provide customer service in English and Spanish.
⇨ Our commercial loan specialists will help you at every stage of the process and make sure you get the lowest possible interest rate.
⇨ We provide our members with access to a large number of educational resources that are updated periodically.
⇨ Our clients are happy to work with us because they receive individual attention and support from our dedicated team of professionals.
If you need funds for your company, apply for a commercial loan . You will know instantly if you prequalify and your application will not affect your credit score.