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Getting a Business Loan Without Ever Dealing With Banks

Getting a Business Loan Without Ever Dealing With Banks

Let’s say you have a business idea but for some reason you can’t get any funds from a friend, bank or other financial institution. In the past, there used to be other alternative to get these types of loans. These were known as peer-to-peer (P2P) lending sites. However, all of these sites have recently started to become something called “crowdfunding sites.”

The Basics of P2P Lending Sites

But first, let’s learn a bit more about what P2P lending sites are. The main purpose of a P@P lending site is to have fast and easy access to funds while at the same time cutting banks out of the equation. In short, a person can go online and in a process that is as simple as a few clicks will be able to borrow or lend money to someone else. Prosper.com is just one example of such sites, and is also the most popular in the field.

Here’s how a P2P lending site works for potential customers interested in borrowing: You first have to agree to a credit check, as well as to disclose your debt-to-income ratio. Once that is done, and using that information, the site will assign you the different amounts that you qualify for based on your credit score, as well as a letter, ranging from A to E. This information then is presented to potential lenders for them to make their decision.

Naturally, lenders will look to protect their interests when venturing in P2P sites. Usually they tend to do so by only supporting small parts of multiple loans instead of risking all their capital in one big investment that the borrower might default.

The reason why P2P companies are now becoming crowdfunding ones is that in past years, companies like Prosper and others failed to set more strict standards when it came to borrowers. In addition to that, these companies also failed in communicating the real risk level that that investors (lenders) were facing in most situations. This of course, caused the P2p site business model to explode on everybody’s face. Thankfully, now standards have become far more refined and demanding, allowing for safer investment opportunities.

The Evolution to Crowdfunding

Nowadays, the very basic idea of P2P sites has begun a radical shift, with most of them becoming “crowdfunding” sites. In the crowdfunding model, the big difference is that a borrower will only secure the funds they need if enough people agree to provide little chunks of support to his or her venture. Thus, if you and your idea don’t get 100% funding, you get no money whatsoever.

Without a doubt, the most popular crowdfunding sites nowadays is Kickstarter.com. But if sites like those have shown us anything, is that people not just want to help, but would also like to receive something in return. For example, while lending money through a traditional P2P will earn investors a nice return, the motivation behind investors in crowdfunding is wanting to help while at the same time having prime access to whatever product or service they are helping succeed.

A similar site to Kickstarter is Kiva.com, which allows anybody to fund loans to entrepreneurs. The difference is that Kiva only allows increments of $25 or higher, while anyone funding a project in Kickstarter can do so starting from as low as $1.

Likewise, MicroPlace.com is another similar site where anyone can support great ideas all over the world, yet people who fund projects in this site will actually earn some basic interest in return to their investment.

The greatest aspect of all these new crowdfunding sites is that they allow regular people with something great to say or to do to completely skip their banks or other financial institutions.

Lastly, it is also worth mentioning that the existence of sites like these pose a great opportunity for merchants all over. Anyone who has access to them and that also has a business, can easily discover real gems in the form of products and services that are oftentimes truly original, and for which people would gladly pay for.