Traditional Financial Institutions vs P2P Lending Platforms

Lack of financing is one of the biggest problems most businesses face as financing and working capital are necessary for business growth. Many businesses rely on traditional financial institutions such as banks for further funding, but P2P lending platforms are now changing views on financing. These days, bank loans are no longer the only available choice for raising capital, especially for small and medium-sized enterprises (SMEs).

But if you are a small business owner, the choices may confuse you. Which institution provides the best financing for your business? The answer depends on your own business. So let’s take a look at the product structure of both institutions and see which one fits you best.

Traditional financial institutions

When we talk about financing from traditional financial institutions, we are normally referring to bank loans. Banks provide loan products to companies, and their product structure are often (but not always) long-term and require you to take out a high amount. The amount value of bank loans are generally higher than what P2P lending platforms can offer. This is an advantage for bigger, more settled businesses.

There are two types of loan products from traditional institutions: secured and unsecured financing. The only thing that differentiates these two options is collateral. Collateral is an asset that can be seized if you can’t repay your loan. It should be a valuable asset, such as property or land. In unsecured financing, you don’t need any collateral to be approved. However, the assessment on your business can be extremely strict.

A drawback of bank financing is that application processing can take some time. Processing a bank loan application can take more than a few weeks, maybe even months.

P2P lending platforms

In P2P lending platforms, most loan products require minimum or no collateral. Investors and lenders will collectively fund your financing needs within several days if your business is approved for a P2P loan. This is why P2P lending raises financing fast.

Another advantage of a P2P lending platform is the ease of its process. Commonly, P2P lending companies are online-based. You can apply for business financing in a matter of minutes. Also, most P2P lending platforms offer quicker approval notifications for your loan applications.

However, P2P lending platforms tend to offer shorter-term products, with smaller loan sizes, such as working capital loans and invoice financing. It is most suitable for small to medium-sized businesses who need financing to manage working capital or ease cash flow.

So, which of the two institutions above will help your business more? Take a closer look at your company before you apply. Good luck! And should you be interested in looking more into P2P loan products, click here.