Peer lending can be a nontraditional source of funding for your small business—instead of applying for a bank loan or investor capital, you ask perfect strangers to co-fund a business loan designed by you. You set the amount and due date, describe how your business will use the funds, and voila, people start pitching in. (Of course, you eventually pay the loan back, plus interest.)
Sounds easy, right? But not all entrepreneurs who use peer-lending sites get the funding they need. Here are some tips that can boost your chance of success.
Be realistic when setting your loan amount.
If you are turning to peer-to-peer lending because your business has already been rejected by traditional lenders, keep your expectations realistic. Most lending sites display your credit score, so asking for an unreasonably high amount or unreasonable terms will likely mean your project won’t be funded at all.
Choose the right venue.
Each peer-lending website serves a different audience. Kickstarter, for example, is meant for self-employed creative professionals who need funding for projects like photo exhibitions, documentaries or self-published books. Prosper and Lending Club, on the other hand, are geared more toward general loans for both personal and business use. Make sure you sign up with the site that best fits your funding needs.
Provide as much detail as possible.
People who “lend” through these websites want to know as much about you as possible. Prosper’s guidelines say you’re more likely to get funded by incorporating information in your post that will assure lenders of your ability to make payments. Plus, don’t be afraid to explain a poor credit score or other public financial problems. For example, if a medical crisis set you back, but your credit was good before and after the event, make that clear—better-informed lenders are more likely to open their checkbooks.
Spell it out.
Likewise, including how you plan to use the money. Many business borrowers even provide complete financials, including their expenses, income and projections of how this loan will change their financial position.
Promote your listing.
Share your post with friends, family and other connections via social media tools, word of mouth, email and other channels. Link to your peer-lending post on your Facebook, LinkedIn and Twitter accounts. Don’t just let the page sit idly—advertise it wherever you can.
Many of these sites have a tool for people to “recommend” you. Gather as many recommendations as possible that speak to your character and your vision for your business.
Read next: 4 Alternative Sources of Financing
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