Similar to crowdfunding, P2P business lending is a fast and accessible way of getting a cash injection into your business without using the traditional way of getting loans. P2P lending is typically debt funding as opposed to equity funding. The essential difference between P2P lending and crowdfunding is that you do not give away any equity, but rather pay interest on the money you borrow — much like you would with a bank loan.
With peer-to-peer lending, borrowers are matched directly with investors through a lending platform and investors get to see and select exactly which loans or portfolio that they want to fund. P2P loans are most commonly for small business loans such as business term financing.
The process of peer-to-peer lending is that businesses who need to borrow money go to a P2P lending platform and apply for credit. A risk category will then be assigned after approval, which determines the interest rate of the loan that will be received. The loan will then be funded by individual investors or group of investors.