Posted on: 22 May 2015
How to improve your chances of attracting lenders at a favourable rate
As with any form of crowdfunding, whether and how successful your fundraising is depends to a great extent on how well you attract the crowd to your project. The first thing to know about your audience is that they’re most likely to be over 55 years of age and their primary motivation for investing is to get a financial return. They’re not as interested in backing local business or supporting social causes in the same way that reward or donation crowdfunding investors are1
Why people are investing more in P2P lending:
• Better rates of return are available when compared to other forms of investment
• Investors are disgruntled with the banks and nervous about investing in major financial markets
• In the 2014 Autumn Statement the Chancellor suggested that individuals will be able to offset losses from bad loans against other P2P gains.
• There is currently a consultation going on as to whether to extend ISA eligibility to lenders using crowdfunded debtbased securities but the timescales are unclear.
As well as the factors we listed in our crowdfunding guide, remember that the following are also very relevant to potential lenders when raising funds through P2P lending:
• Your credit history, both your own and your business’s
• Your company financials, including its profitability and the strength of its cash flow
• How you come across personally in your pitch – the more professional, knowledgeable and trustworthy you sound, the more attractive your project will be
• Be clear about what difference the loan will make, not only to your business but also to your customers and society in general
• The strength and involvement of your existing network
• The quality and effectiveness of your social media activity
One of the most important areas for you as a P2P business borrower to focus on is answering questions posed by potential lenders about your project. Responding quickly, accurately and in as much detail as possible will significantly improve your chances of converting those potential lenders into actual investors.
“Investors’ questions and your answers are available for anyone registered to that particular P2P lending platform to see,” warns Ian Gurney, “so while you must be full and honest in your responses, be careful what you say and don’t give away any confidential information. Forums like P2Pindependentforum.com are a great place for potential investors to share information, and while they shouldn’t attribute information to particular borrowers, there is still a chance your business could be associated with some comments. So be careful.”
Some small businesses list several loans on different platforms at the same time, and then only choose to accept one of them when the auctions finish. This can be a good way of getting the best rate on the market, but be mindful of having to pay listing fees for the pleasure. Others choose to take smaller loans from multiple platforms rather than a bigger loan from one.
“The key to making both these approaches work is being open and honest with your investors,” says Ian Gurney. “Often investors themselves lend money on multiple platforms to spread their own risk. So if, during an auction, they find out they’re actually investing in the same business just through a different platform, they may not like it and so not fund your loan.”
View our full Peer to Peer Lending Guide or browse through the content below to learn more.
- What is peer to peer lending
- How does P2P business lending work?
- How to choose which platform to use
- What are the risks?
- What is British Business Bank backing?
- How to improve your chances of attracting lenders at a favourable rate (you are here)
Download the full guide here - PDF (Click Image)