How to leverage peer-to-peer lending to grow your business

It takes love, patience and resilience to run a small business. It’s both incredibly rewarding and stressful.

At Nook, we collaborate with government departments on community focused projects. We have to move and gather teams fast and deal with shrinking deadlines. We also work on our own projects, developing products and services with a social purpose.

The cyclical nature of finance for project-based SMEs

Whether working with government or non-government clients, a few of the factors that make it hard for SMEs to get ahead are: erratic project cycles, forced hiatuses waiting for contracts or purchase orders, and seasonal slumps such as pre and post-Christmas when client decisions grind to a halt.

SMEs are also impacted when work and payment term timelines don’t match payroll cycles. The bigger the team, the more cash-flow strain is felt whilst waiting for invoices to be paid. I think most SME and start-up owners can relate to how funding gaps can be a worrying distraction.

The future for small business growth

Even if you have a successful small business and strong credit history, getting financed through a traditional lender can be difficult, time-consuming and expensive because SMEs are often considered a risky investment.

After the release of The Interim Report of the Financial Services Royal Commission, many are predicting that traditional lenders such as banks are going to tighten their lending policies and their level of scrutiny, making it even harder for SMEs to access business loans. It’s already tough enough, especially if you don’t have personal financial assets such as a mortgage.

We need more options to support the growing ecosystem of SMEs, social enterprises, and innovators to take businesses and ideas to the next level and sustain growth.

The positive impact that peer-to-peer lending platforms can have on businesses

I’d heard about peer-to-peer (P2P) lending, but it wasn’t until a friend of mine recommended it, that I decided to try it.

I liked the fact that P2P lending acts like a marketplace matching people who have money and are looking to earn better returns on it, with the people who need extra funds to either grow their business or meet their personal goals.

I conducted extensive research to find something that was flexible, and both time and cost effective. The upshot was, I successfully secured a personal loan through the peer-to-peer lender RateSetter on two occasions to inject funds into my business.

The nature of our business and its growth was taken into consideration, and because this was a personal loan, I was able to quickly secure funds. We weren’t charged any fees for paying back the loan early, which made it compelling to do so once cashflow stabilised.

Peer-to-peer loans can be helpful for:

  • Gap funding – The funds can provide the cash flow needed to tide a business over while waiting for contracts to arrive or for the next funding cycle to begin. It can help alleviate the financial stress to allow you to focus on running your business.
  • Growth – This additional cash can be incredibly useful to expand your network, fund ways to connect with interstate or international collaborators, markets and investors.

Creating a sustainable and successful business is the dream of every SME, and there are now ways to access funds that can help have a positive impact on productivity and growth. I encourage small business owners to research non-traditional financing options such as peer-to-peer loans and look into the government incentives available such as the export grant. It’s made a big difference for us.

Mel Flanagan, Founder, Nook Studios

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