Legal advice and guidance on peer-to-peer lending for business

Peer-to-peer structures have become a popular way for businesses to lend and borrow money, but there are complex regulations to be aware of.

While there is the potential for lenders to access high rates of return from peer-to-peer structures, not all schemes of this type are the same. Borrowers can benefit from greater flexibility offered by peer-to-peer lending but it's important to consider all the options.

What are peer-to-peer structures?

Peer-to-peer finance allows lenders and borrowers to bypass the banks and benefit from better rates than they could otherwise access.

Most peer-to-peer lending is conducted online, and sites that facilitate this have become hugely popular in recent years.

New schemes are entering the market all the time, providing lenders and borrowers with attractive alternatives to traditional bank loans.

Peer-to-peer lending sites work by matching borrowers and lenders to create mutually beneficial finance agreements, for a fee.

There are hundreds of different sites offering a variety of different approaches, and it is important to consider all the implications of peer-to-peer finance before entering into an agreement.

Some sites lend money to individuals, while some lend only to businesses. Other sites provide finance for all types of borrower, and the potential returns for the lender can be significantly higher than other types of investment.

What are the advantages of peer-to-peer structures?

While borrowers benefit from more flexibility than they would get from a bank loan, with funding available within as little as a few days with no early repayment fees, the main advantage for lenders is the higher rate of return.

When lending through peer-to-peer structures, you typically stand to benefit from the option to tailor your arrangement to suit your situation.

Most sites allow you to choose exactly how much you lend, from as little as £10 and with no upper limit, and you can set the timescale of the deal.

The site then takes care of the other side of the deal, by lending your money to various borrowers and repaying you through a combination of interest and borrower repayments.

Peer-to-peer structures have gained significant market share in the UK, this is partly due to the poor rates of interest that banks have offered since the financial crisis.

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What are the disadvantages of peer-to-peer structures?

Borrowers in peer-to-peer schemes pay higher rates of interest than they would with a normal bank loan, and charges, default rates and taxation may not always be clearly communicated by peer-to-peer sites that seek to lure borrowers and lenders in by offering flexibility and quick returns.

Peer-to-peer schemes are not covered by the Financial Services Compensation Scheme (FSCS), although they are now regulated by the Financial Conduct Authority (FCA).

That means savings and investments are not necessarily protected. Each site has its own terms that govern when you can access your money, and you can be left with less security than you would receive from a licensed, authorised lender.

I am interested in further legal advice on peer-to-peer lending – what's my next move?

It is important to thoroughly assess the risks of any peer-to-peer lending scheme before committing to becoming a lender or a borrower. This is where you should speak to a solicitor who specialises in the field.

First4Lawyers can help you navigate this relatively new market and offer you tailored advice from an expert solicitor on the risks involved, and the legal implications for you and your business.

Get in touch with our legal advisors for a free review of your legal requirements.

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