How to finance your leisure business using P2P funding

By April 28, 2017 No Comments

In what follows, I’ll be giving you some hard-nosed tips and advice about P2P (peer to peer) funding for businesses in the leisure sector.

This is real experience based upon my own background in leisure industry funding – not abstract academic theory from a book!

Let’s get into it with a quick re-cap on the basics of P2P funding.

What is P2P funding?

If you’re a business – of any size – in need of finance then you could go to one of the typical mainstream lenders. (Banks, large asset finance companies etc etc).

Lenders of that type typically have three very prominent characteristics:

  • they’re likely to be risk-averse (possibly bad news if you have some credit history problems);
  • they are typically slow to make decisions;
  • they’re don’t like anything ‘unusual’.

Many SME’s discover every day how painful it can be dealing with these types of lenders!

Creating an alternative to this situation and problems partly explains why peer to peer lending was developed. In a nutshell, P2P funding involves connecting lots of individuals  – or sometimes business investors  – with companies needing funding.

As an aside, while P2P lending is often referred to as crowdfunding, there are differences – with peer to peer lending, investors’ money is matched, via an online platform, to a loan for a person or business (Debt): with crowdfunding you and the other investors actually own a stake in a business (Equity).

How that benefits you

Here are just some of the reasons why P2P funding might be advantageous to your business:

  • speed of response (deals are usually underwritten in a matter of a few days, hours in some cases!);
  • lenders operate in a managed-risk culture. They are largely dynamic investors looking for innovation, drive and opportunity, as opposed to bank administrators keying in parameters to a loan approval programme that will say ‘yes’ or ‘no’ mechanically. Bottom line – if you have a good proposition you’re much more likely to get a ‘yes’;
  • they don’t have vast corporate overheads they need to cover off in their pricing and return on investment (ROI) requirements. Bottom line here is that your borrowing costs might be lower;
  • they are run with a ‘business’ mentality not a ‘banking’ mentality, so that means they’ll be far more understanding.

How to go about it

As an SME the reality of life is that, wandering around with your leisure business proposition in your hand whilst hoping to fall on funding, just isn’t likely to happen.

You’re going to have to make a plan and actively go out and connect with such lenders.  Here’s an overview of how that connection takes place:

  • lenders don’t like piles and piles of individual propositions hitting them from multiple sources and directions at random. The work of validating them is just too high;
  • instead, many place their money with an intermediary specialist P2P funding company. That intermediary’s job is to offer pre-validated borrowers’ propositions with risk/return forecasts and then investors can choose which to support and to what extent;
  • as a borrower, you will submit your proposition and case to such a specialist P2P funding company. They will perform a due diligence check on what you’re proposing and your business foundation;
  • once they have approved your application to join, your funding needs will be put forward for the loan to start, with investors joining in as they wish;
  • as a borrower, typically you’ll need to be a registered company with some trading history behind you. Your funding request will also need to be well constructed, thought-through and cohesive. That’s another way of saying that the sums you’re looking to borrow and your purpose, need to make sense against the real nature of your business metrics to date.
  • once enough lenders have agreed to put money towards you request and the full amount has been raised – you have done it!

OK, I’ve made it seem perhaps overly simple here. There are some other subtleties of approach that I can assist you with and you may very well have some more questions about how all this works.

Why not contact me for a non-committal discussion of P2P funding possibilities and how they might apply to your leisure industry business?