Peer-to-peer lending facilitates independent financiers to effectively offer small business loans. P2P loans are certainly far easier to secure as compared to the bank loans. It has filled up the void in the market for all those businesses which are not able to qualify for conventional lending options. P2P loans are legal contracts that would be impacting your credit score. As such, it is of great importance to find out the credit implications associated with a peer-to-peer loan.
Personal Credit Needs
When you take a P2P loan for your business, in reality, you are taking out a personal loan for catering to your business needs. In this case, the lender would not be that much interested in your business’s financial reports or business plan as he would be in your credit and assets. If the P2P loan is approved, it would be going in your name and also against your social security number or credit identification number. The P2P loan would look like a personal loan to everybody and could impact your capability of securing other personal loans in future including mortgages. Moreover, these loans may in the long rum threaten even your personal assets when you fail to repay the debt as per schedule.
Personal Credit: The Qualifying Factor
As the lender is providing the loan precisely to you and not to your business, the focus would be on your personal credit. Your individual credit is supposed to be the most vital qualifying factor for a P2P loan application process. Your all other debts would be verified against your income. However, your income may be negligible if you are just initiating the business. You have the opportunity of enjoying better P2P financing provided your personal credit score is high. This may not happen in the conventional lending sector where you would be eligible for good terms provided your business is well-capitalized. This could be the enticing factor about peer-to-peer lending but when your credit score dips, your loan may become exorbitant. Get in touch with the reputable https://www.libertylending.com/ for expert help and timely assistance.
When your business defaults on a conventional loan, it would be held responsible. Your business would be penalized. If necessary the collection agency would be getting in touch with your business and not personally you. But in contrast to that when you miss any scheduled payment on a P2P loan; the entire defaulting burden would be on you personally. Suppose your business is unable to pay $500 monthly payment as the business is going through a bad patch or slow sales cycle, you would be contacted personally by a collection agency for recovering the money.
Conclusion: Default & Protection
In the event your business is unable to repay the P2P debt, you do not have any protection against the obligation to pay personally. Suppose you have taken a traditional business loan precisely in your company’s name, and if the business files for bankruptcy as it cannot fulfill its payment obligations, the business would be dissolved by the court and debts would be resolved. However, if you have taken a P2P loan for your business and if the business has filed for bankruptcy, your personal assets would be at stake. It is mandatory to repay all your business P2P debts even if the business has been dissolved.