Crowdfunding and Peer to Peer Lending (P2P)
Crowdfunding and Peer-to-Peer funding are the fastest growing forms of alternative finance amongst SMEs in the UK. Although it is still relatively small in comparison to bank lending (approximately 20% of the total market), it is the fastest growing form of finance in the UK. The British Bank is financially supporting a number of these Alternative Funders which are regulated by the Financial Conduct Authority.
Crowdfunding comes in 2 forms: loan-based and equity/investment based. In general terms Crowdfunding looks more at the future plans of the business, so can be suitable for start-ups. But investors need to believe your plans and see them as achievable.
Loan-based crowdfunding is where you can borrow different amounts from a number of smaller investors and then they are paid a return on their investment.
Equity-based crowdfunding is where shares are offered in return for a loan – again it can come from a number of smaller investors.
Peer-to-Peer funding is loan-based and it is usually carried out through on-line platforms. It will require a detailed business plan and current financial information, so the business usually needs to have been trading for a couple of years. The loan is repaid with interest to your investors.
Another option is Peer-to-Peer invoice finance where cash can be released against specific invoices – usually carried out via an on-line platform as well.
The main advantage of crowdfunding can be speed, which is brought about by the investment in technology. Loans can be approved in under 2 weeks, whilst single invoices can receive funding in hours (although 2- 3 days is the norm).
The number of providers is increasing all the time so let us take the strain of finding the most suitable option for you.