Do you remember what buying a flat at your favourite destination used to be? Spending hours wandering around the venues with a commission-hungry broker, who brings you deals which include their own profits. But today with new online property websites, this process has become hassle-free and also cost-efficient. This fashion of bypassing traditional lending methods is taken over by the new P2P lending for business.
Don’t let the mainstream financing problem become a hindrance in the path of success for your business. The rise of this lending paradigm between the individuals and businesses has solved the pecuniary troubles to a large extent. 2018 was seen as the year of new hope for the companies which carry out the P2P lending platforms, as the RBI instructed the need for a certificate of registration for all NBFCs who want to start this practice.
What is P2P lending for business? How it benefits both the parties and what position it holds in future? Comprehensive details have been mentioned below in the article about everything you need to know about P2P business.
- What is P2P lending business?
- How P2P business works?
- Benefits of P2P business for borrowers and investors
- The facts and figures
- The future P2P business holds in India
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What is P2P lending business?
Peer to peer or P2P lending for business allows the borrower to obtain loans directly, without the interference of financial institution, from other individuals or business houses. This type of lending can be considered as a business loan where the borrower is provided loan by a large number of private investors. This process of lending and borrowing is carried out on online platforms.
The difference between a standard loan and peer to peer lending is that unlike the standard bank loan where a single banking institution lends money; P2P gives the loan from the collection of individuals and this arrangement of the collection is facilitated by the P2P provider. In other words, the borrower is taking a loan from a number of individuals and not from the provider.
P2P lending is also called social lending or crowdfunding as the loan is raised to help the people who are unable to get loans through financial institutions.
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How P2P business works?
Peer-to-peer lending is conducted online which provides the borrower with wider choices of lenders and is also profitable for the investors who can earn higher profit by giving a cut to the bank.
The sites set interest rates along with the terms and conditions which are required for enabling the transaction. The interest rates are normally provided in a very large number of interest rates which largely depends upon the creditworthiness of the borrower.
Firstly, the investors have an account with the P2P online sites and they deposit the money which is to be disbursed as loans. Next, the borrower uploads his financial profile which is tagged with the risk category determining the interest rate which is to be paid by him. Lastly, the entire process of money transfer and monthly transfer of payments is handled and facilitated by the P2P online business platform.
There are numerous sites which specialize in a particular type of borrower according to their needs such as borrowers of small businesses or for patients where doctors provide financing programs. Both the borrowers and investors can approach the type of website which fulfils their objectives and needs.
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Benefits of P2P business for borrowers and investors
For borrowers
Peer to peer lending is a brilliant option for borrowers as it avails numerous advantages which are not provided by traditional banking institutions such as:
- Lower interest rates – On one hand where the interest rates may appear higher on the face of it, when analyzed carefully one will notice how he will not be required to pay the additional fees or any other processing fees.
- Fewer restrictions – The investors don’t usually bother about the purpose of the loans unlike traditional banks which usually hesitant before giving personal loans; this saves you from the soup of restrictions.
- Quicker and simper – Unlike the traditional banks which have a lengthy and confusing method of applying for the loan along with numerous terms and conditions which leads to technical jargon for most borrowers, the process for applying for a P2P loan is easier and is mostly handled by the portal. The time taken by the banking institutions for disbursing loans can take up to weeks if not months; whereas a P2P disburses loans in just a few days.
For investors
- The investors can earn points on the money invested by them above the banking institutions.
- The investors are given with several prospectuses before them with a detailed financial profile of the borrower, which allows the lender to choose the borrower to which he wants to invest money in.
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The facts and figures
There are a few facts one needs to be au fait with before borrowing or lending money in P2P business.
- P2P lending has generated investments worth more than $200billion worldwide.
- The worth of the P2P market was $26.16 billion in 2015. Estimation of a whopping $897.85 billion by the end of 2024 is made.
- The market research predicts the P2P business will hit 45% of global shares in the market by the year 2020.
The following figures represented in graphical format will give you clear insights about the current position of the P2P lending for business around the globe.
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The future P2P business holds in India
The peer to peer lending business is still in the nascent stage in India. After the recent recognition of NBFC status by the RBI, this business has witnessed a high paced growth of industry due to the increased awareness of alternate mode of borrowing and lending of money among the individuals. The P2P market has forecasted a growth of industry about $4-5billion by the year 2020.
The main advantage of P2P business is that it is carried online which makes it easier, accessible and safe. A major chunk of the market who are unable to get the loans due to various reasons like weak CIBIL score or and other restrictions by banks are covered under the financial umbrella of P2P platforms. Not only for the borrowers, but also for the lenders the P2P market has turned out to be a lucrative way of earning interest from their savings.
This online method of lending and borrowing of money has picked up pace in the past years. This industry currently has some promising players which propel the growth of industry based on a strong and robust system. The favourable regulations by the RBI will lead to prominent growth of the industry in the coming years making it an innovative and efficient platform for people who want to lend money for better returns and for the customers who have been denied loans by the financial institutions.
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