Home Business Funding - No Banks!

There are many things that unite the nation's army of home workers (the ability to take important calls whilst still wearing your pyjamas not the least of them!) but the biggest issue facing anybody who is trying to start up a home business is ... funding.

We all know that the current financial climate is not exactly inviting for small home-based businesses to borrow money, so I was really interested this week to learn more about the new trend in P2P (peer-to-peer) lending schemes.

This is where small and home businesses can bypass the banks and borrow money online from lenders who are frustrated with the banks' low interest rates; preferring to lend money to help start-ups at a much better rate of return. 

Having looked at a few websites it seems like a pretty straightforward process; you submit an application for a loan and if you are approved by the underwriters then your profile and request go up on the site. The more lenders who offer to help you out, the lower your repayment interest rates are.

Rates of interest run typically between 8% and 15% in a P2P exchange - a great deal higher than any of the banks so economically better for lenders, whilst small businesses who may be ignored by banks can get the money they vitally need to continue to grow.

Currently left to its own devices, in 2014 the Financial Conduct Authority (FCA) will fully regulate the P2P sector, meaning that any defaulted borrowing would be covered by the Financial Services Compensation Scheme (FSCS) and the lender would be paid back.

However, rebuildingsociety, a P2B (peer-to-business) lending site which matches those SMEsP2P lending could be the way forward for home-based businesses looking for funding with those able to lend, has carried out recent research that shows that 17% of people in the UK would consider lending money to UK businesses now, even though non-regulation means that they would be at risk of losing out if their recipients didn't pay back the amount borrowed.

Sounds like a pretty strong statement to the banks, if people would rather risk losing their money than deal with these dodgy institutions!

The research also shows that figure will rise to 26% of people who would be happy to consider loaning money through the P2P market when the FCA regulation comes in.  

I was surprised at this, as I thought it would be a higher figure - rebuildingsociety's research reckons that low awareness of P2P schemes, along with a lack of understanding for what they actually do accounts for this. I guess they are still relatively new, and it will take a while before they become more commonplace. 

Interestingly, the research picked up that people in London seemed more likely to lend to small businesses - 36% of Londoners said they would participate in a P2P deal, whilst only 21% in the north west of England would, and a much smaller 11% in Wales! Men also appeared to be stronger advocates of the scheme than women

So from that can we gather that Welsh women are going to take a whole lot more persuading?!

Personally I feel quite strongly that this may be the way forward for home workers - if lenders' money is covered by the FSCS and interest rates are higher, surely they've got nothing to lose, and if you're a home business owner whose bank is turning its nose up at you then you've got a potential lifeline here.

So how do you, the iHubbub members feel about this? Would you consider either loaning, or borrowing from a P2P website? Would you be confident enough to cut your ties with the bank?

We'd love to hear from you if you have experience of peer-to-peer or peer-to-business lending - please drop us a line and tell us more!

We want to hear about the good, the bad and the ugly ...