Peer-to-peer (P2P) lending is a form of alternative finance where money is borrowed directly from private investors through an online platform. Instead of going through a bank, the platform connects businesses that need funding with individuals or institutions willing to lend.
The platform’s role is to manage the process: collecting applications, carrying out credit checks, and handling repayments. This makes it an organised system where businesses access capital and investors provide funds, without a traditional financial institution in the middle.
How Does P2P Lending Work?
The process of getting a P2P loan is structured but straightforward. A typical journey looks like this:
- Application – A business applies through the platform, providing financial information such as company details, recent accounts, bank statements, and the purpose of the loan. Director information may also be required for identification and credit checks.
- Assessment -The platform reviews the application, runs credit and risk checks, and confirms the terms if approved.
- Listing – The loan request is published for investors to review, including details such as the amount, term, and interest rate.
- Funding – Investors commit funds until the full loan amount is reached.
- Repayment – The business makes regular repayments of capital and interest, which the platform distributes back to investors.
This process removes the bank as an intermediary while keeping a structured system in place through the platform.
Why Businesses Use P2P Lending
Businesses often turn to P2P lending because it can provide faster decisions than banks and more flexibility in how loans are structured. It is also more accessible for companies that may not have large assets or a long trading history.
These features make P2P useful for raising working capital, funding property projects, or supporting growth plans that need quick finance. In many cases, it fills the gap left by traditional lenders, which have become more cautious and are increasingly viewed as the alternative for SMEs.
Risks and Considerations
Key Risks
| Risk | What It Means |
| Higher costs | Interest rates may be higher than bank loans, especially for businesses with weaker credit profiles. |
| Platform failures | If a platform closes or faces financial issues, access to funding or repayment management could be disrupted. |
| No government protection | P2P loans are not covered by the Financial Services Compensation Scheme (FSCS), so there is no safety net if problems arise. |
Potential Benefits
While P2P lending carries risk, it also offers advantages that appeal to many SMEs. Platforms are faster and more flexible than banks, with simpler applications and quicker access to capital. Many investors are open to supporting smaller or newer businesses, so approval rates can be higher than traditional lenders. For some firms, that speed and accessibility outweigh the higher costs.
What Platforms Look For
Before approving a loan, platforms carry out their own checks to manage risk. Typical requirements include:
- Company accounts – recently filed accounts and up-to-date management figures.
- Bank statements – usually the last three to six months to check cash flow.
- Director information – identity documents and personal credit checks, as directors may need to provide guarantees.
- Loan purpose – clear explanation of how the funds will be used.
These checks help the platform decide whether to approve a loan and what interest rate to set. Businesses should be ready to provide this information and understand that it forms part of the overall risk assessment.
The UK P2P Market in 2025
The peer-to-peer lending market in the UK is much smaller than it once was. Many platforms have closed or moved away from the model, leaving only a few still operating.
Funding Circle and Assetz Capital were once the biggest names, and many business owners still associate them with P2P, even though they no longer lend in the same way.
A handful of platforms continue to use the model, including Social Money, Scramble, and, to a lesser extent, Crowdfunder. The choice is limited, but the landscape is clearer than it was in the past.
Common alternatives to P2P lending:
- Unsecured business loans: A fixed term loan with set monthly repayments. Useful for working capital or general growth where speed and simplicity matter.
- Invoice discounting: Releases cash from unpaid invoices while you keep control of collections. Suits firms with reliable customers and steady invoice volumes.
- Revolving credit facility: A flexible line of credit up to an agreed limit. Draw and repay as needed, and pay interest only on what you use. Helpful for seasonal or uneven cash flow.
- Stock finance (eCommerce funding): Providers such as Juice and Wayflyer advance capital based on your stock or revenue performance. These options are popular among online retailers and eCommerce brands that need quick funding to buy inventory or manage cash flow between sales cycles.
Costs of P2P Lending
The cost of a P2P loan depends on the type of borrowing, the platform, and the risk profile of the business. Typical ranges look like this:
| Loan Type | Typical Interest Rate | Notes |
| Business loans | 12% – 18% | Rates vary with credit history, financial strength, and loan size. |
| Property-backed loans | 8% – 15% | Higher rates reflect the risks of development or longer repayment terms. |
In addition to interest, most platforms charge fees. These often include:
- Arrangement fee – charged when the loan is set up.
- Servicing fee – sometimes applied during the loan term.
The rate a business receives depends on how the platform assesses risk. Firms with stronger accounts, steady cash flow, and a clear loan purpose are more likely to secure lower rates. Higher-risk borrowers may still access funding, but at a premium.
The overall cost can be higher than the headline rate, so businesses should review both interest and fees before making a decision.
Key Takeaways
- P2P lending connects businesses directly with investors through an online platform, removing the need for a bank in the middle.
- The process is simple but structured: apply online, go through checks, get listed for funding, and repay through the platform.
- Businesses use P2P for speed, flexibility, and accessibility, especially when banks are cautious or slow to lend.
- There are risks: higher costs, no FSCS protection, and reliance on the platform’s stability.
- The UK market has narrowed. Well-known names like Funding Circle and Assetz Capital shaped the sector, but only a few providers such as Social Money, Scramble, and Crowdfunder still operate in this space.
- Costs vary. Business loans often range from 12% to 18%, property loans from 8% to 15%, with extra fees added. Stronger businesses usually secure better terms.
Peer-to-peer lending remains a practical route for businesses that value speed and flexibility. It can work well alongside other solutions such as invoice finance, stock funding, or revolving credit. For SMEs, it’s one tool in the wider funding mix – best used when you need quick access to capital without giving up ownership.
Thinking about P2P for your business? Get in touch with our experts for clear guidance and next steps.
