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 With all the dismal talk surrounding the economy and the subsequent belt-tightening of the lending industry, peer-to-peer, or P2P, lending has been a warm ray of light and hope. It is the natural outgrowth of an increasing demand for financial assistance coupled with the versatility and social reality of the Internet. Through peer-to-peer lending, consumers and small businesses can access loans from other people on the Internet while avoiding banks or credit cards.

How It All Started

As the credit bubble started bursting, banks and lending institutions began tightening the requirements needed to secure financing. This left numerous individuals and small businesses scrambling for alternative means of funding. When faced with such a situation, many people instinctively turn to their family members, friends, and neighbors. While this may provide a quick funding solution, it lacks the formality and security that traditional lending offers.

But the future looks bleak for those seeking traditional financing. It is well known that the decrease in Federal interest rates will not necessarily filter down to the consumer.

How Peer-to-Peer Lending Works

Enter the vast social networking world of the Internet. Numerous sites have been recently launched that create a marketplace for borrowers and lenders to find each other. Even among friends and family, everything is carried out formally and professionally. These sites provide identification and verification services as well as an assessment of the credit risks. Clear, precise documentation covers the loan’s terms and conditions as well as the repayment schedule and tax payments as determined by both parties

Though there is some variation among the different sites, they all basically operate the same way. Borrowers post their loans including any information necessary for a lender to consider the request. Included in the post is the amount requested and the maximum amount of interest they are willing to pay. One unique aspect to peer-to-peer lending is that it gives people the chance to tell their story.

Some sites open the loan request up to many people at a time- both acquaintances and strangers. The loan is then set in small increments which allows several different lenders to fund portions of the total amount and thus spread out their risk.

Once funding has been completed, many peer-to-peer lending institutions continue to provide loan administration throughout the duration of the loan. This includes monitoring repayment. If 30 days go by without a payment, the loan is immediately sent to a collection agency.

The Major Players

Currently, the largest peer-to-peer lending website is Virgin Money. Virgin focuses primarily on lending among family and friends and promotes their formalized process.

The next largest site is Prosper.com which, like Virgin, encourages friends and family to lend to each other, but they also open their market up to strangers.

Another service, Lendingclub.com, requires a business profile and uses a search algorithm that matches prospective lenders and borrowers.

Other popular sites include: Zopa.com, GlobeFunder.com, and Community Lend.

Some Drawbacks

Like every good thing, peer-to-peer lending does have its drawbacks. Most sites put a cap on the amount that can be funded- usually around $25,000. So those seeking larger amounts will need to look elsewhere. Moreover, like any other traditional loan, defaulting on payments will tarnish a credit rating and thus prevent future financing. Finally, even with the formalized process, the general rule is that money and relationships don’t always mix so nicely- especially if payments are not met.

The bottom line, however, is that peer-to-peer lending is here to stay as a quick source of financing and a ray of hope for those who need.

According to statistics, women entrepreneurs are starting businesses at a rate two times that of men. Though more businesses are being started by women, they generally have a harder time growing their businesses and accessing the financing they need.

Recently, in response to the current economic downturn, banks and other lending institutions have begun to increase the restrictions and requirements needed to secure a business loan. This means that getting a business loan has become harder these days. For those women who are not inclined to woo angel investors or venture capitalists, securing the capital necessary to grow their businesses can be a challenge.

What many women may not know is that financing goes beyond traditional bank loans, angel investors, or venture capitalists.

If you are a woman small business owner, and you are looking for capital to expand your business, here are a few financing alternatives to consider:

Grants for women entrepreneurs. There are many grants available through the local and federal government as well as women’s organizations that are set up specifically for women entrepreneurs. Since grants do not have to be repaid, they are a more attractive option to a loan. This money is given to entrepreneurs who fit certain criteria in order to help them achieve their financial goals

Business line of credit. Business credit can come in the form of an overdraft at the bank or a business credit card. Though both options can lead to a quick source of capital, they should be used with caution. Both methods of finance come with high interest rates, and debts can easily spiral out of control, leaving you with a bad credit history.

Tap into personal assets. Home equity lines of credit or the value of your life insurance policy can be used to secure financing for your business. Though these are popular financing methods, you should also use thse with caution since you stand to lose tremendously if your business is not profitable.

Ask family or friends. Use your connections. If you personally know people who have the funds to help your business, then ask them. But, you should be careful who you ask and only request loans for the short-term. In genral, money tends to put a strain on relationships.

Equipment leasing. This is an attractive option for women business owners who do not have enough capital to pay for the expenses of operating and expanding their company. By leasing their equipment, instead of purchasing it, women business owners can free up their working capital and thereby take advantage of opportunities to expand or improve operations.

Taking on a partner. You can alternatively acquire funds by having someone invest in your company and become a partner. The investor can be either an active parter or a “silent” one who is not involved in the business’ daily operations.

Invoice factoring. If you are looking for a way to free up capital that is tied to customer invoices, then invoice factoring is a viable option. In this case, a business sells its accounts receivable at a discount to another company. This company then provides instant payment.

Merchant or business cash advances. A cash advance is a good finance option for those businesses that process credit card sales. The cash advance company purchases your future credit card sales at a discount and provides your business with an instant cash advance. Repayment is then based on sales volume. This means, when sales are slow, a smaller payment is made during that period.

What are some popular, alternative financing options for small businesses? Small businesses seek alternative financing when a traditional bank loan is not an option.

The world of alternative financing may be more vast and “mainstream” then you realize. Since the funding in this category is generally more accessible, alternative financing has been the boon of many small businesses that lack the collateral, good credit and business history needed to secure a “traditional” loan at the bank.

If you own a small business, and you are seeking additional capital, then you should consider alternative financing. However, keep in mind that while some options provide excellent opportunities for business owners to get the capital they need, other methods are more risky and should be used with caution.

First here are some popular alternative financing methods that you should either avoid or use cautiously:
Credit cards

With high interest rates, debts can spiral out of control, leaving you with a bad credit history that can hinder your chances of getting traditional financing in the future.
Bad credit business loans. There are many companies that will offer you a loan against your bad credit, but be aware that these loans carry very high interest rates (usually in the range of 20%). With these loans you are also more likely to encounter predatory lending.

Home equity lines of credit

No matter how sure you are of your business’ success, is it worth betting your house on it?

Cash in the value of your life insurance policy

Ask family of friends

Even if this is an option, money can put a strain on relationships. So while your business may be well funded, you may end up emotionally bankrupt.

So now that we have seen the bad and the ugly, let’s consider some more attractive methods:

Equipment leasing

This is an attractive option for small business owners who do not have enough capital to pay for the expenses of operating and expanding their company. By leasing their equipment, instead of purchasing it, businesses can free up their working capital and thereby take advantage of opportunities to expand or improve operations.

Taking on a partner

You can alternatively acquire funds by having someone invest in  your company and become a partner. The investor can be either an active parter or a “silent” one who is not involved in the business’ daily operations.

Seller financing

If you are looking to start or buy a new business, then seller financing is something to look into. Sellers of small businesses generally allow the buyer to pay some of the purchase price of the business in the form of a promissory note. Sellers will usually finance between one and two thirds of the sale price that can be paid back with interest over several years.

Invoice factoring

If you are looking for a way to free up capital that is tied to customer invoices, then invoice factoring is a viable option. In this case, a business sells its accounts receivable at a discount to another company. This company then provides instant payment.