Tips for Funding Your Business with Peer to Peer Lending
26 May, 2016 / Comments: Comments Off on Tips for Funding Your Business with Peer to Peer Lending / By William Mahnic
Whether you are looking for funds to get your startup off of its feet or if your established business has hit a rough patch in terms of sales, sometimes you need a little extra cash to tide you over. Peer to peer lending works by helping savers who are looking for a better rate of return and businesses that need financing. However, before you dip your feet into this type of borrowing method, it’s best to follow these tips to fund your business successfully using P2P lending. Here are five tips for successful peer to peer lending.
Figure out if You Qualify Before Investing Your Time
Most P2P lenders require that businesses fill out an online application to apply for their loan. However, unlike traditional credit applications, P2P applications will only show up as a soft inquiry on your credit report and won’t have a negative impact on your credit score. If you are approved, the interest rate that you qualify for will depend on your loan amount, credit score, credit usage, history, and loan term. Typically, you must have at least a credit score of 640 to qualify for a P2P loan. Additionally, it’s recommended that you look into your state’s regulations on P2P borrowing, as each state is different.
Have a Plan in Place to Repay Your Loan
Usually, P2P loans are given out for three or five-year term lengths and require that you make monthly payments. It’s important that you come up with a plan to make timely repayments to ensure that your credit score is not affected and that you remain in good standing with your creditor. Although the shorter term length may make you wary, keep in mind that many people enjoy having a strict term-based repayment plan as it keeps them on top of their payments and they know that they will be done repaying their loan in a relatively short amount of time.
Make Sure That You Know About all of the Hidden Fees
Many P2P lenders charge a fee for lending to a business for the first time. This fee usually varies from between 1 to 5 percent of the loan amount and is determined based on the amount of the loan. This origination fee will be tacked on to your APR and taken out of the total loan balance before it is dispersed into your account. Make sure that you are aware of this fee and take it into consideration when shopping around for P2P loans. Additionally, be aware of the late fees that will pile on if you don’t make timely payments. This fee can range from 1 to 5% of the payment that you owe.
Don’t Take Out More Than You Need
Although you may feel you want to pad your loan with a bit of cushion in case you end up needing it later on, it is recommended that you avoid doing so. You should not take out more money from a P2P lender than what you strictly need. No matter the type of loan you take out, whether it’s a traditional bank loan or one from a P2P lender, if you do not make your payments on time, you’ll end up paying a hefty price. Make sure you only take out the amount that you can handle repaying on time each month.
Take Out Slightly Less Than the Rounded Number You Want
Although this tip has not been verified, as P2P lenders don’t publicly publish their interest rates online, it is worth a try. You may be able to gain a lower interest rate on your loan if you a fill out your loan application for an amount that is only slightly lower than the round number you want. For example, if you want to take out a P2P loan for $10,000, then take out $9,995 instead, which may put you in a lower interest rate bracket.