Peer-to-peer lending is increasing in popularity and becoming a viable alternative to bank loans for car purchases, home improvements and business expenses. The question may then arise if you can use personal loans for business purposes or if you must specifically receive a business P2P loan. Most lenders who do not specifically offer business P2P loans offer personal-for-business loans. But when a company distinguishes between a business and personal loan, you can expect a few differences.
Personal P2P Loans
The majority of P2P lenders offer personal loans for a variety of purposes, such as debt consolidation or extra cash for a vacation. Personal loans are typically smaller than business loans. For example, Lending Club offers personal loans up to $35,000 but business loans up to $100,000. As personal loans are leant to you, your credit worthiness will be a deciding factor affecting the loan you can receive. Companies will consider aspects such as your credit score, debt-to-income ratio, employment history and even your education. You may have to supply tax documents and payment stubs to prove your income.
As these loans are still personal loans yet approved for expenses related to your business, the same requirements for eligibility apply as with standard personal P2P loans. Most companies will not require any information related to your business. However, some may ask for some documentation to verify your company. But in the end, these are still personal loans against your personal credit.
Business P2P Loans
Business P2P loans differ in that these loans are issued to your business. While lenders may likely still require your personal credit information, you can be sure you will need to provide documentation concerning your business, including business tax returns, tax forms and bank statements proving your business's income. Many lenders require that your company has been in business for a certain number of years and that it brought in a minimum sales figure the previous year. The documents you provide are to verify these eligibility requirements. If in the end you do not qualify for a business loan, you may still be eligible for a personal-for-business loan.
Knowing the differences between these three types of loans can help you know what to expect as you apply for a P2P loan. If you know what to expect, you can be better prepared and feel more ready as you interact with peer-to-peer lenders.