As a witness to (and key member of the target market for) the Napster boom and also to its somewhat grim aftermath, my biggest mental connection with the phrase “peer to peer” is likely one that follows it with the words “file sharing.” Oh, the movies I’ve downloaded! But, I digress. More importantly , “peer to peer” has a newer connotation with ties to the small business workplace. You may encounter this phrase being used to describe a rather wide category of short term, often unsecured loan products offered by private lending institutions. What is “Peer to Peer Lending,” exactly? Is a Merchant Advance a form of this financial arrangement, or a different product altogether? And what options does a Merchant Advance present for your business that a peer to peer lender may not offer? Read on to find out.
What Is a Peer to Peer Lender?
- Peer to Peer (sometimes shortened as P2P, for you web-savvy types that need to scrimp for each and every one of those 140 characters) lending is characterized by a direct exchange of funds between a small business and its investors, without the use of an intermediary such as a bank.
- The majority of peer to peer loans are unsecured, and negotiated by individuals rather than businesses.
- Many peer to peer lenders, like Prosper and Lending Club in the United States, do business online. The internet allows the connection of many potential investors to any given party interested in obtaining funding.
- Peer to peer lending may take the form of crowdfunding – a method by which a business can raise capital by soliciting it directly from diverse members of their community. Online communities like Kickstarter and IndieGogo have provided a massive boost to the availability of crowdfunding for startup projects in recent years. Rather than receiving interest as is common in a traditional loan, crowdfunding lenders are rewarded for their contribution with products, perks and other tangible items. Crowdfunding is a not-for-profit enterprise, whereas peer to peer lending is generally for-profit.
- Peer to Peer lenders often offer faster turn-around time (from application to acceptance and availability of funds) than a conventional bank loan.
- The terms of repayment on a peer-to-peer loan may extend over multiple years.
How Does a Merchant Advance Compare to P2P?
- Technically speaking, a Merchant Advance is considered a wholly different kind of financial product than a peer to peer loan.
- Merchant Advances are designed specifically for small businesses rather than for individuals.
- Merchant Advances do not operate on a schedule of fixed repayment: as our FAQ explains in detail, we calculate repayment based on an automatically deducted percentage of your business’ debit and credit card sales. This is so your business can repay the advance flexibly, quickly and in accordance with the natural ebb and flow of your business cycle.
- The funds provided by a Merchant Advance are not sourced from a crowd or outside investors that have been matched to a given borrower.
- A Merchant Advance is generally tailored by our underwriting experts to be repayable in full over a period of 10 months to 1 year, compared to the lengthy terms associated with traditional loans and peer to peer lending services. Merchant Advances allow your business the potential to optimize the use of new working capital to increase growth, so as to repay your balance quickly and efficiently with a minimum of financial disruption.
- Merchant Advances can also be applied for online to save time and provide the most efficient means of finding the right funding solution for your small business.