Over the past decade, borrowers are finding it difficult to secure loans from commercial banks. It becomes tougher especially when you have little or no credit history that a financial institution can rely on. It is for this among other reasons that borrowers have turned to peer-to-peer investing firms. Generally, peer-to-peer lending involves matching potential borrowers with lenders. It cuts off the middleman aspect, a role played by mainstream banks. As a result, borrowers secure funds at rates slightly lower than what they would have obtained from banks.
Another aspect of P2P investments is that all transactions are carried out online. If you have some amount of cash that you are not using, this is an ideal way of profiting from your savings. One of the greatest worries among investors is how to get their money back. There is no need to worry about that. P2P websites vet all borrowers by carrying out credit checks on them. Many firms also do debt chasing meaning that you don’t have to spend a lot of time or hire debt collectors.
It is common for people to think that P2P and CSF is one and the same thing. Despite the fact that the principle behind them is the same, the two are different. The two modes of raising funds involve pooling of resources. Here are the main differences:
- CSF is ideal for businesses that are only starting up. If your business is a startup, you sell the idea to investors. If they like it, they put their money into your venture. After your business picks up and you get good returns, you pay back the money together with a reward on top.
- On the other hand, P2P does not involve giving away the equity in your business. Nonetheless, investors inject cash into an existing business. In return you repay the amount borrowed together with interest. This works in the same way as borrowing from a bank.
- While CSF finances startups, P2P finances existing and established businesses. You can borrow a loan for buying property, boost working capital and buy stock or purchase factory equipment.
Real estate P2P works in a similar fashion. As a real estate investor, what you do is seek people to invest in your venture. After securing the loan, you buy property, renovate and resell it at a higher cost. Upon completing the sale of your property, you pay back the lender plus interest. In the end, each party benefits from the arrangement.
Until recently, P2P lending was only for businesses. The concept has now found its way into the real estate market. A number of companies provide the much needed funds.