P2P lending


The path to success often begins with substantial funding. Finding someone who trusts your ambitions and plans, and acquiring financial support, has always been challenging. Many promising startups have given up at this stage, rendering their efforts futile. However, as the world progressed, things started to smoothen out. Promising ideas became more appealing, and investors had nothing to fear thanks to new forms of lending and investing, known as peer-to-peer lending (P2P). The concept of P2P lending is quite simple—an investor lends money to a borrower without involving conventional financial institutions. This has opened up new avenues for business owners to quickly acquire loans and ensure the success of short-term strategies.

Despite the opportunities P2P lending offers, certain myths deter investors and businesses from moving forward. The angst for possible failure or negative outcomes drifts inquiring minds away from P2P and wastes its untapped potential. As we delve into this article, the truth about P2P lending shall be uncovered and myths will be debunked with Modsen’s expertise, helping businesses define the right approach and unveil its potential through outstanding success stories.

Understanding P2P services: success lies in unity and trust

P2P services

P2P lending is just a small part of a huge peer-to-peer movement bringing countless groups of users together resulting in the creation of a colossal network of user-based search engines and file systems. A distinct feature of P2P services is direct communication between computers with each having equal access to necessary data and sharing the same responsibilities.

As for the current state of P2P, we can confidently say that this model has recently made a giant leap forward. An array of new services provided by P2P online platforms have emerged varying from simple transactions for buying and selling goods to access acquisition to valuable data. There are even some cases when P2P services are not related to transactions, as they are monetized through advertising or data exchanges.

Delving into the peculiarities of P2P lending

P2P lending peculiarities

However, speaking about P2P lending in this article, we’ll center around transactions and most importantly - beneficial ones. As we’ve mentioned in the beginning, P2P lending is essentially the way of making transactions without any need for traditional financial institutions as a middleman. Peer-to-peer (P2P) lending works by connecting borrowers who need money with lenders who want to make a return on their investments. Borrowers in turn submit loan requests to the peer-to-peer lender and investors then begin a race for financing the loans in exchange for an interest rate. A mechanism, pretty similar to the auction’s one.

From start to finish, P2P sites manage the entire process, including creditworthiness assessment, loan servicing, and payment making. Such aspects as the interest rate and the form in which a loan is given are defined by several factors. As the loan applicant submits his financial information, there will be further considerations for interest rates coming from risk rates. The same goes for P2P lenders having the possibility to choose the appropriate form of a loan with the most beneficial risk-reward ratio.

There are endless possibilities for funding with peer-to-peer lending.

  • Personal P2P loans. The scope of peer-to-peer loans is usually much broader than traditional banks have. Financial services, such as medical bills, vacations, debt consolidations, and big purchases are provided through P2P lending.
  • Education P2P loans. The possibility to fund the studies most appropriately made P2P loans more appealing than those offered by traditional banks.
  • Business P2P loans. Often business loans are just a quick start for enterprises to stay competitive and begin to properly invest and advertise as well as expand their staff.

And now comes the most essential question concerning P2P lending: What differentiates it from a traditional one? In a nutshell, P2P lending services in comparison with conventional banking are more flexible and time-efficient. No need for third parties made the entire process much easier alongside the absence of strict regulations.

Myths debunking: don’t stop me now

Modsen P2P services

Fintech has had a revolutionizing impact on the market with each financial facet going digital. But that was not the case for the unanimous trust in financial technologies. The same goes for P2P lending, as the whole sector of peer-to-peer services experienced a lack of trust and the mist of myths surrounding it keeping potential investors away. Not anymore! Now we are going to debunk the most common myths concerning P2P lending to scatter away any doubts.

Myth 1: P2P lending is underregulated and unsafe

P2P lending safety

People who are interested in experiencing P2P lending might be confused by the fact that there are no specific rules in place. All conditions are determined by individuals involved in peer-to-peer lending systems, which may raise concerns about the safety of the entire operation.

While these concerns were justified in the early stages of P2P lending, the industry has rapidly developed, gaining recognition as a stable and effective framework for lending and borrowing finances. Since 2014, the Financial Conduct Authority (FCA) has played a role in regulating and safeguarding the interests of lenders and borrowers. The FCA’s regulations primarily apply to large enterprises and substantial operations within the P2P framework. Therefore, there are no objective reasons to distrust P2P lending due to a lack of regulations.

Myth 2: P2P lending stands for high-risk investments

P2P lending risks

High-risk ventures in the investment field are often associated with the forbidden fruit that tastes the sweetest. However, for some unknown reason, most people assume that P2P lending obligates investors to take higher and unnecessary risks. These assumptions arise from the fact that the lending and borrowing processes within peer-to-peer models are less regulated, leaving lenders perplexed and hesitant.

Comparing this myth to the previous one, we can see that there is certainly less truth to it. As we explained the peculiarities of P2P regulation systems, it becomes clear that peer-to-peer lending is comparable to traditional lending. While every investor is concerned about default risks, there are effective solutions to increase the chances of success, such as diversifying their portfolio.

Myth 3: P2P lending requires substantial sums

P2P lending requirements

Startups aspire to reach the pinnacle of success through effective development, while investors seek substantial returns on their investments. These considerations can lead to a misconception that only large sums of money are suitable for the P2P lending system, leaving small enterprises with little chance of obtaining the required funding.

However, the truth is that there is no specific requirement for a significant initial investment to benefit from P2P lending. Investors have a range of tools at their disposal that allow them to tailor specific requirements for businesses, such as a minimal investment threshold and level of risk, among other conditions. While it is true that investing in small enterprises may not yield overnight results, P2P lending services have already demonstrated their stability and the investment strategies they offer.

Myth 4: A trouble receiving money from P2P lending

Money receiving

Investors may experience apprehension when providing microloans, especially within the context of large enterprises that require more funding. This unease is amplified in the newly emerged peer-to-peer lending model, where there is a perceived lack of trust in the system. Some investors believe that the only way to ensure the return of their money is to invest heavily, which relates to the previous point about substantial sums of money for investment.

On the contrary, P2P lending services offer investors a wide range of options and tools to maintain control over their money and ensure transparency throughout each process.

4 P2P lending apps worth of your attention

P2P lending apps

Now as your confidence in P2P lending is reinstalled, it’s high time to consider the most beneficial variants of peer-to-peer platforms. From getting a quick start for your business or investing in a promising startup by providing the most appealing loan - these are the options you can go for:

  • Lending Club. Founded in 2007, this platform has a whopping amount of approved loans resulting in 50$ billion. The most vivid peculiarity worth mentioning is the fact that both investors and borrowers can secure loans as small as 1000$, which is perfect for making personal loans and business investing.
  • Funding Circle. Founded in 2005, the platform has already processed more than 10$ billion in investments. This specific P2P lending service focuses on offering small business loans with rapid application processes. Requests can be approved within 24 hours and funding will be received in 3 days.
  • Prosper. Operating since 2005, Prosper claims that more than one million people have used the site to secure a loan, and individuals have invested more than $17 billion through the platform. The service offers a vast variety of multi-purpose loans, from medical bills coverage to debt consolidation.
  • Upstart. This peer-to-peer lending app began its path in 2012. The fame it received was rooted in its unique customer approach, which takes into consideration such factors as academic performance and work history. This provides investors with comprehensive data for making informed decisions.

Wrapping up

The peer-to-peer lending model has completely revolutionized the way companies obtain funding for their businesses and how investors operate. Like any innovation, it is surrounded by controversy, misconceptions, and myths. Only time will dispel the fog of mystery surrounding P2P lending systems.

Looking at the current state of the peer-to-peer framework, it is evident that it holds immense untapped potential and could evolve into something even bigger and essential for the entire financial system. Putting trust in outstanding Modsen experts utilizing best practices will help your business to take its ultimate form with P2P endless potential. And now, as P2P systems continue to unfold, join us to stay ahead, ride the waves of progress, and stay tuned for more exciting content!

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