What is peer to peer business finance?

Peer to peer business funding (sometimes referred to as P2P) is an innovative way of raising business finance.

It has many attractions but also some points to consider. Here’s a quick overview.

The old approach

In the past and to some extent today, the banks were the first port of call for business finance (i.e. loans of one sort or another). That was particularly the case for SMEs – the PLCs were different and could raise money through share issues and so on.

That bank-based system worked moderately well but was blown apart by the financial crisis of 2008-2012 and some events of the following years too. Suddenly businesses found that the banks were saying ‘no’ far more often than ‘yes’ and the application review processes also started to stretch out.

Paradoxically, the changing role of the banks also proved to be an indirect boost to businesses in the sense that increasing numbers of specialist providers of business funding stepped up to the plate to fill the void. This increased the diversity of the funding marketplace and one such step was the expansion of peer to peer finance.

What peer to peer funding means

Another by-product of the banks’ problems was that many private individuals were becoming frustrated at the low return on their investments deposited with the banks. They were looking for more potentially lucrative returns and money growth.

It didn’t take long for the new entrant providers and such potential investors to combine in the creation or expansion of several new funding models, including peer to peer.

It operates very simply:

  • your funding proposition is submitted to a specialist provider;
  • they will review it for completeness and basic business credibility;
  • if approved, the proposition will be forwarded to individual peer to peer investors to consider and invest in.

The advantages

Typically, peer to peer systems for the business might be:

  • faster to conclude than bank applications;
  • more successful in attracting investors than might be the case with typically risk-averse banks;
  • typically attracting lower interest rates than some conventional loans.

Points to note

P2P business finance shouldn’t be seen as a money tap to be turned on when required. It is typically much more hard-nosed than it might at first seem and you will probably require assistance to access it.

For example, investors will typically expect to see:

  • pre-validated proposals;
  • sound propositions that make sense to them (even after the initial provider’s review). Keep in mind that funding for business expansion is typically well received if supported by appropriate figures. Funding requests trying to shore up a company in crisis might receive a much more negative reaction;
  • a solid grasp by the proposer, of the financial metrics and status of their company;
  • a healthy projected return;
  • typically two years’ trading history with recognisable accounts;
  • some indication of shared financial risks – in other words, if you’re asking them to risk their money, they’d like to see that you’re doing likewise through options such as equity release in your existing properties etc.


If you have the assistance of an experienced business finance provider, peer to peer funding might be a viable option for you going forward.