Marketplaces are a great way to connect with other entrepreneurs and potential investors. They provide a centralised platform where you can find customers, investors and private lenders. The marketplace is a new kind of lending solution but it benefits start-ups, micro and small to medium enterprises (SMEs) greatly.
A funding marketplace or platform lending connects businesses and entrepreneurs who are looking to borrow money from investors. The investors on the platform are looking for investment opportunities or to buy a business.
With SMEs’ lack of access to funding, leveraging funding marketplaces can help close that gap. SMEs can obtain funding, business support and other development opportunities to help them grow and continue to contribute to the country’s economy.
In this article, we explore funding marketplaces and how you can explore them to get funding for your business.
What Exactly Is Marketplace Lending?
In marketplace lending, the lenders use online platforms (not connected to traditional banks) to connect borrowers to investors and other lenders for funding purposes. This allows the borrowers flexibility to negotiate favourable terms and rates for their loans.
This type of lending platform leverages financial technology tools and solutions within its business model. This means that it only exists online, and all processes are done on the platform.
Some common themes within marketplace lending include:
- The lender will connect small businesses to other lenders and investors.
- The marketplace does not exist anywhere else except online (no physical retail space).
- The online platform offers a range of financial products.
- It uses competitive rates and fees.
- Fosters transparent funding deals/contracts through the use of technology.
- Prioritises data-informed decision-making and risk management.
- Has a quicker approval time than traditional lending solutions.
Remember, marketplace lending (also known as peer-to-peer lending) puts a strong emphasis on the relationship between the borrower and the lender.
What are the Advantages and Disadvantages of Marketplace Lending?
The advantages/benefits of marketplace lending are:
Accessibility: For borrowers, you get access to a wide range of lenders and different lending options. Additionally, you can connect with lenders who will have less strict requirements for funding, giving you access easily.
Favourable Rates: Different lenders may offer custom rates that are more favourable for you. This is one of the ways in which marketplace lending differs from traditional banks.
Quick Approval: Because you talk to the lender directly, you will get approval for your loan quicker. Also because of the leveraging of technology, approval is much quicker compared to traditional loaning options.
The disadvantages/cons of marketplace lending include:
High Risk for Lenders: One of the drawbacks of this type of lending is that sometimes borrowers don’t pay back loans. This leads to a loss for lenders and a decrease in trust between lenders and borrowers.
Laws and Regulations: Regulations and legal protections that come with traditional lenders might not be the same on marketplace lending.
Inconsistency: Marketplace lending platforms sometimes have subscription fees which can be an extra cost to your lending
These pros and cons outline some of the features of marketplace lending platforms. Now we will look at how to choose the right marketplace lending platform for you.
Choosing Your Marketplace Lending Platform
There are many platforms you can choose from (mostly internationally) but before you sign-up you need to know how to choose the right one.
Step 1: Do enough research and find the right platform for you.
Step 2: Register on your chosen platform.
Step 3: Since you will have a profile on the platform, you need to ensure your profile is up to date and will attract the attention of investors.
Step 4: Now is the time for you to put in your loan request. Ensure that you enter the correct amount and apply for the right kind of loan.
Step 5: Waiting for approval is the hardest part so you have to exercise patience. However, the turnaround on approvals on marketplace lending platforms is fast so you won’t wait long.
Step 6: Once your application has been approved, you will receive your funds.
Step 7: This is the final step in your research, paying back the loan. You have to ensure you are capable of paying back any loan you might have received.
Marketplace Lending Platforms
FunderJet
FunderJet is a peer-to-peer platform that operates in South Africa. The company connects borrowers with lenders who have flexible lending rates and investors. To apply on FunderJet, you only need to scan the QR scan and enter your details.
As a borrower, you pay an initiation fee and a monthly fee of R 69. You must know that to qualify for funding on FunderJet you must have an income of at least R 15 000 per month before tax.
ThundaFund
ThundaFund is a crowdfunding platform. Crowdfunding is similar to peer-to-peer lending in that the platform connects borrowers to lenders. On ThundaFund you do not pay back any money or investment given to your business. However, you must ‘repay’ the investment by giving investors or lenders rewards. Rewards can be a product or service from your business.
The South African Angel Investment Network
The South African Angel Investment Network is a paid membership platform that connects entrepreneurs with investors (local and international) for funding. The investors are typically former wealthy entrepreneurs and executives who are looking to invest money and provide business support to new entrepreneurs.
These are the platforms you can explore for marketplace lending. Remember, you only need to join the platform, create a profile and wait for investors to contact you.
For more information on alternative lending solutions, visit the SME South Africa review page.
