As I’ve mentioned several times in the past, only a fraction of the capital that is provided to small and medium sized businesses actually comes from banks and other institutional lenders.
Depending on who’s numbers you want to believe, I personally peg the amount somewhere around 40%.
So where does the rest of the money come from?
Boutique lenders, angels, venture capital groups, joint ventures, licensing agreements, and so on.
One of the sources that is getting some press these days are peer to peer lenders where businesses with case are basically providing loans to other businesses that qualify under certain criteria.
Here’s an article that goes into more detail of peer to peer networks in the U.S.
For me, this type of lending makes a great deal of sense for a number of reasons of which I’ll name a few.
First, if you’re a business with excesss cash and nothing internally to invest it in, what are you going to do with it?
Why not put your cash into businesses that are in your industry or a similar industry whereby you know how to qualify their business plans and monitor their performance and manage your risk?
If the loan goes bad, perhaps you’ve just acquired some assets that are very useful to yourself for pennies on the dollar, or you end up taking on partner that can add greater value to you in the long run.
There’s lots of other potential reasons for being a peer lender, but I’ll leave the rest for another day.
Business financing should always be about creating economic value from capital being utilized, regardless of the purpose. Period
As a business owner seeking capital, the more valuable your intended economic benefits are to more people with money, the sooner you’re going to find the capital you’re looking for