Accessing funding for small businesses has traditionally involved bank loans with stringent qualifications and delays in approval processes. However, the emergence of peer-to-peer (P2P) business lending platforms in recent years has revolutionized small business financing. P2P lending connects individual and institutional investors directly to small businesses seeking loans, bypassing banks as the intermediary. This innovative model offers business owners a faster way to access capital with more flexible terms.

We will explore the leading P2P business lending platforms and compare their key features, loan options, eligibility requirements, and funding success rates. 

How Peer-to-Peer Business Lending Works

Before reviewing specific platforms, it is important to understand the basic process and mechanics of P2P business lending.

The Flow of Funds

When a small business applies for a loan on a P2P lending platform, its profile, credit history, and loan terms are posted publicly for investors to review. Investors can choose to fund all or parts of the requested loan amount in exchange for interest payments. As individual investors contribute, the platform facilitates collecting funds until the total loan amount is met. The platform then disburses the funds to the borrower in a single disbursement.

Periodically, usually monthly, the borrower makes principal and interest payments back to the platform as part of their loan agreement. The platform distributes the borrower’s payments back to the individual investors proportionately based on their percentage of funding for that loan. This process continues until the loan is paid off.

Peer Ratings and Credit Scores

To assess a business’s creditworthiness, P2P platforms evaluate traditional credit factors like payment history, debt levels, and business financials. They also consider “soft” data like performance reviews from other users (peers) on the platform. Having an established positive profile and payment history on the platform improves a company’s credit score or “trust rating.” This not only makes financing terms more attractive but can also boost fundraising success rates.

Benefits for Borrowers

The main advantages of P2P business lending for small company owners include:

• Faster funding decisions and loan processing compared to banks
• Tailored loan terms on amount, use of funds, interest rates
• No collateral requirements for most loans under $150,000
• Flexible structure – terms tailored to individual business cash flows
• Continued access to affordable capital by building a strong payment track record

Benefits for Investors

For individual and accredited investors, the top benefits include:

• Attractive and risk-adjusted returns typically 8-12% annually
• Diversification across many small business loans up to $35,000 on average
• Opportunities for both debt and equity investing in small companies
• Automated online platform allows easy investing from any device
• Fractional investing from as little as $25 allows building diverse portfolios

With this understanding of the peer-to-peer lending model in place, let’s dive into reviewing some top platforms for business borrowers and investors to consider.

Top Peer-to-Peer Business Lending Platforms

LendingClub

Founded in 2006, LendingClub is one of the largest P2P lending marketplaces and pioneers the model in the US. Some key features:

• Loan sizes range from $5,000 to $300,000 for larger businesses. Personal credit is required for under $100k.
• Interest rates range from 6-35%, depending on creditworthiness. The average APR is 11-12%.
• Fast turnaround with decisions in 1-2 days and funding within five business days.
• Robust small business loan options up to $500,000 backed by the SBA.
• Mobile app allows easy account management and loan applications.
• Over $50 billion funded to date and a 13-year track record builds trust.

LendingClub is best for established small to medium-sized businesses seeking six-figure loans. The larger loan sizes and range of small business products make it one of the top overall platforms. The investment minimum is $25.

OnDeck

Founded in 2006, OnDeck is solely focused on small business loans and cash flow-based underwriting. Key attributes include:

• Loan sizes range from $5,000 to $500,000, tailored to 3, 6, or 12-month terms.
• Interest rates average 35-100% APR but are based on real-time business cash flow analysis.
• Fast funding – usually see money in 2 business days after approval.
• Focuses only on U.S. businesses with 1-500 employees.
• The mobile dashboard provides full account accessibility anywhere.
• $9+ billion funded to 120,000+ businesses across various industries.

OnDeck excels at quickly providing funding based on future cash flows rather than credit scores alone. Best for micro-businesses seeking under $100k loans based on immediate capital needs. Minimum investment is $25.

Funding Circle

Founded in 2010 and headquartered in London, Funding Circle operates marketplaces in the UK, US, and select European countries:

• Loan sizes range from $25,000 to $500,000 for US businesses, £1,000 to £250,000 in the UK.
• Interest rates are 5-20% in the US and 4-9% in the UK based on business credit ratings.
• Funding takes 5-10 business days after approval in the US.
• Focuses online applications on financial records and annual revenue.
• $13+ billion has been lent globally to over 100,000 businesses since 2010.
• The mobile app and dashboard provide investor and borrower portal access.

Funding Circle offers financing options for small businesses across a variety of sectors. The global footprint and larger loan sizes make it a top choice for those seeking funding internationally. Minimum investment is $10.

Kabbage

Kabbage, founded in 2009, specializes in providing working capital through lines of credit and invoice factoring up to $250,000:

• Credit lines range from $1,000 to $250,000 based on monthly cash flow analysis.
• APR is typically 3-6% depending on automated underwriting results.
• Funds are disbursed on the same day or the next with approval in minutes using the online application.
• Leverages cash flow and accounting integrations like QuickBooks and Xero for live updates.
• $10 billion has been funded since 2009 to over 300,000 small businesses globally.

Kabbage uniquely offers near-instant access to working capital without collateral through its sophisticated underwriting engine. An excellent option for high-growth businesses seeking flexible revolving credit. No investment minimum is required.

StreetShares

Founded in 2012, StreetShares exclusively focuses on funding small business government contractors:

• Offers loans of $5,000 to $400,000 tailored to 3 to 36-month terms.
• Interest rates average 8-12% depending on loan and borrower risk ratings.
• Thorough underwriting and borrower due diligence, including contractor verification.
• Leverages contractor credentials and federal contracts as primary considerations.
• Has funded over $150 million to over 300 government contractors to date.

Given its niche focus, StreetShares is best suited for small federal contractors seeking to grow operations or complete new contracts. The platform provides a valuable financing resource for this specific borrower segment. Minimum investment is $25.

Peer-to-Peer Lending Concepts and FAQs

Now that we’ve covered the leading platforms, let’s address some frequently asked questions that borrowers and investors may have about peer-to-peer business lending.

1 What are the eligibility requirements to borrow on P2P platforms?

Most platforms have similar baseline requirements:

• Business must be located in the US, be a registered legal entity (LLC, S-Corp), and be in business for at least 1-2 years.
• Owners must be US citizens or permanent residents, over 18 with valid SSN, and pass an assessment of personal credit history.
• Businesses need minimum annual revenues of $100k-$250k, depending on the platform, and own a business bank account.

Some platforms may impose additional criteria like the industry, number of employees, or use the funds for an approved business purpose. Applying the right platform based on your business profile is key.

2 How are interest rates determined?

Rates are based on a proprietary credit scoring model examining business financials and payment history. Some top factors include:

• Personal and business credit scores from major bureaus
• Debt-to-income and asset ratios from financial statements
• On-time payment history, delinquencies, or bankruptcies
• Time in business, revenues, and growth trends
• Loan term (short vs long-term)

Strong cash flows and credit profiles typically qualify for the lowest rates between 5-12%. Rates tend to be higher for less established or riskier borrowers.

3 How much can I expect to pay in fees?

Most platforms do not charge application or prepayment fees. Customary fees are:

• An origination fee of 1-5% of the loan amount charged at funding
• Late fees of 5-10% of the monthly payment amount if past due
• The possible fee to pay off the loan early, typically 1-3% of the outstanding balance

4 What happens if I miss a payment?

All platforms report borrower payment performance to the major credit bureaus. Missed or late payments will damage your credit rating. Most allow one 30-day late payment before considering a loan in default. After 60-90 days past due, the loan may be sent to third-party collections or legal action pursued to recover funds owed. It’s important to proactively communicate any issues to avoid long-term credit impacts.

5 How accurate are funding projections on the platform listings?

Projections are statistical estimates based on past trends for similar loan types and should not be relied on as a guarantee. Actual results can vary based on current investor funding levels, market conditions, and competition from other listings. It’s best not to expect funds until the platform confirms your loan is fully subscribed to and disbursement will be finalized in the coming days. Communicating regularly with your allocated platform representative is recommended during the funding period.

6 What happens after a loan is funded?

Once a loan is fully funded, the platform will disburse the total amount to the borrower within 2-5 business days. Borrowers then make scheduled monthly principal and interest payments directly to the platform as agreed. Both borrowers and investors can track payment activity online. As long as payments remain current, the normal relationship concludes after full repayment of the principal and final interest installment. However, the platform may periodically contact borrowers about opportunities for future financing products based on their standing.