Peer-to-Peer Lending in Real Estate and Startups

Raising capital can be a tricky process for startups. Banks will offer them stringent terms on loans that they cannot fulfill, and family and friends may lack enough faith in your idea to make a large investment.

This is where the concept of peer-to-peer lending becomes ideal. In P2P lending, investors look at various projects and handpick which one(s) to invest in. Lenders are shown the business requirements, how it will be run, its expected income stream, and the beneficiary’s credit history.

Peer-to-peer lending is conducted purely online and is as legitimate as any other lending platform. Loans can be secured or unsecured depending on the platform chosen – Blackhawk Corp, for example, uses real estate to secure their loans. Similar to bank loans, there is some interest that will be paid upon repayment of the loan.

Crowd source funding (CSF) should not be confused with peer-to-peer lending (P2P). CSF is still a number of investors contributing towards the success of your project, but there is no interest paid back. However, you may have to give out part of your equity since those investors will become shareholders. This labels CSF as equity investing. As an investor, P2P lending gives you capital preservation and a constant income stream as the loan is repaid. The projects are of course vetted, lowering the risk of investing in a project that will not succeed. CSF doesn’t offer an assurance of repayment, so the risk involved is much higher.

Choosing loan security as commercial property, like shopping centers, office buildings, apartments, or industrial warehouses is known as commercial mortgage. Commercial mortgage brokers manage the process for you by finding the appropriate quotes from lenders and overseeing the financing. They usually require a fee upfront to process the paperwork, and the terms of the loan are made to suit both the lender and the recipient in terms of the loan amount, repayment term, and interest rate.

Both borrowers and lenders in the real estate market stand to gain from the gap left by banking institutions using commercial mortgage brokers.

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Vincent Garibaldi

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