Like the saying goes,”The only things certain in life are death and taxes” Unfortunately, small companies know that expression too well.
Unlike employees who look forward to their refund each April, small companies loath the approaching spring, realizing they might need to pay Uncle Sam its share of the profits. Every year, small companies struggling to turn a profit in an increasingly competitive business environment must pay taxes so as to keep their doors open.
Although a company may have steady earnings and revenue or thousands of dollars in inventory, banks and conventional lending institutions simply are not handing out small business loans as though they were in year’s past, leaving little business owners with few financing options to pay their tax bill.
These modern social lending marketplaces have connected millions of borrowers with individual investors. Borrowers receive low-interest, fixed-rate loans that can be paid off in 2 to five years, while investors are able to benefit from decent returns in a market with sinking bond and savings rates.
Therefore, it’s a win-win scenario for both small business owners in need of immediate financing and investors seeking to make a little profit when helping others.
From Desperation to Exultation: One Person’s Venture to Peer-to-Peer Lending
John Mitchell is an Ohio-based small business owner who found himself in such a predicament just annually.
After getting his inventory levels, pricing models, and direction only right, he decided to expand his business by opening a second place in a neighboring town. But knowing the success of his business, he thought he would simply receive a small loan in the bank that housed his accounts and supplied him with the initial loan he used to establish his business four years earlier.
Regrettably, he witnessed first-hand the effect the downturn has had on lending regulations because the banker he’s known for many years denied his loan application. If he could not get a loan there, where could he?
On the brink of grief, John took on the web to research loan choices. After digging through discussion and trying a couple of different searches, he ran across peer lending. In under a week later going through the fast and easy application procedure, he obtained a personal loan at a low rate for the amount he needed. A week later, John sent a check for the full amount to the IRS, and less than eight months later, he managed to pay off the loan together with the profits from his new store!
If you are a small business owner who’s found yourself in a similar circumstance, peer-to-peer lending can do the exact same for you too, but how does peer-to-peer lending function?
The Way Peer-to-Peer Lending Works
From assisting in the organization of overthrowing political regimes to staying connected with family and friends members, social media has had a deep impact on our daily lives. Now, it is changing the small business financing landscape as well.
Peer-to-peer lending is a contemporary social networking solution for small businesses in search of a means of securing alternative funding. The objective of peer-to-peer lending websites, for example Prosper and Lending Club, is just to link individual investors together with people in need of funding, and these websites are getting to be an increasingly useful tool for small business owners that cannot secure funding from conventional lenders.
As Opposed to leaping through endless hoops just to be denied by a bank, small businesses can get financing through peer lending in no time Whatsoever by following three easy steps:
Step 1: Create a Profile and Loan Listing
There are a myriad of peer-to-peer lending networks to choose from, so your first step is to research the very best ones and create a profile and loan listing on the site you pick. The loan list is fundamentally a cost-free ad that indicates the amount of money you need and your preferred interest rate.
Step 2: Let the Bidding Process Begin
Following your list goes live, investors have the opportunity to begin bidding on your listing, providing you with all the rate of interest and loan amount they’re willing to give you. A major advantage of this bidding process is the simple fact that it can intensify as an increasing number of lenders start competing for your business.
When this happens, rates of interest will begin dropping, possibly allowing you to acquire a much lower rate of interest than you predicted. It’s important to notice, however, that your credit rating, income, and debt-to-income ratio plays a role in the lending decision process.
Measure 3: Funding and Paying Back the Loan
One more advantage of borrowing from peer-to-peer lenders is that you can accept a few bids to receive your requested loan amount. For instance, if you request $10,000 on your loan list to pay your business taxes, you can acquire the amount from collecting $2,000 from five different borrowers.
This makes it much easier for borrowers to receive the money that they require. However, instead of making five separate payments, you’d only make one payment, because the peer reviewed lending site is responsible for dispersing the money to lenders until loans are repaid in full. They just charge a small fee for this service.
With increased lending regulations, banks are tightening their purse strings more than previously, which makes it much harder for smaller companies to get the funds they need to expand their business or pay their own taxes. Happily, peer-to-peer lending has proven to be a worthy competitor in the small business lending marketplace. If you are a small business owner and wind up unable to pay your earnings as April approaches, or endorsed taxes for that issue, a peer-to-peer loan is an ideal option.