Peer to Peer Lending

Checklist for Starting a Peer to Peer Loan Business

Peer-to-Peer Loan Business is done by lending, loans commonly known as Peer to Peer Lending (P2P). It is an alternative lending method where an individual can avail a loan through an online platform. This method is convenient compared to the traditional lending methods of banks  and is usually beneficial for short-term loans. The  P2P  Lending license is regulated by RBI.

It is a type of crowd funding which acts as a bridge between the lender and the borrower and enables the borrower to avail the loan without the involvement of any intermediary. The businessman should be vigilant while starting  such business and hence it is important for the businessman to be aware of the Checklist for Starting a Peer to Peer Loan Business.

What are the Types of Loans in a Peer-to-Peer Loan Business? 

The types of loans that are provided in this business are:

Consumer Loans 

These are the personal loans which are provided to the borrowers when they act in the capacity of a consumer, e.g., car loan, home loan etc. 

SME Loans 

Small Business loans are provided for asset finance. Working capital or business expansion.

Property Loan 

This type of loan is provided for the first charge of personal or residential property. The loan is for personal mortgages, residential reimbursements, Buy to let etc. 

How does a Peer to Peer Loan Business Operate?

The business operates by providing funding to its borrowers. The funding is provided by the below-mentioned methods –

Auction 

Here the auction takes place between the P2P lenders about which lender can provide the loan at the lowest interest rate to the borrower. The loan can be funded by 7-8 lenders depending upon the amount of the loan.

Fixed Rate Auction 

In this case , the lender provides the loan to the borrower at a fixed rate of interest, and this method is considered to be the most convenient method among other methods. 

Marketplace Lending Method 

Here the bank or the finance associates of the lending platform shall underwrite and complete the loan requirements of the borrower; once the process is completed, the finance associates or the bank associated with the online platform send the loan ID to the borrower. 

Benefits of Peer-To-Peer Loan Business 

• Fast and Convenient Method of Obtaining Loan 

This form of business is quite convenient as it operates through an online platform where the loan can be obtained without any hassle, proving to be a better business option for earning more profit. 

• Easy Application Process 

The application process for obtaining a peer-to-peer loan license is quite easy, making it easier for the business to start its operations quickly. 

• Customer Retention 

It makes the customers really happy as they get loans on a lower rate of interest despite having a low CIBIL score which encourages the customers to opt for this method rather than the traditional lending method resulting in customer retention.

• Prevents the Involvement of Intermediaries 

The P2P Lending Business is a completely online method that prevents the involvement of any intermediaries and acts as a direct bridge between the lenders and the borrowers.

• Flexible 

This loan system is quite flexible compared to the traditional lending methods, which are considered quite rigid and complex.

What is the Checklist for Starting a Peer-to-Peer Loan Business?

The checklist comprises the following 

• Fulfil the Eligibility Criteria for starting the business 
• Arrange all the Necessary Documents 
• Follow the proper procedure to obtain the license and start the Peer to Peer loan business 

Fulfil the Eligibility Criteria 

• Eligibility Criteria Obtain Peer to Peer Loan Licence.

The businessman needs to fulfil the following criteria to obtain a Peer-to-Peer Lending License –

1. The company willing to start a peer-to-peer loan business should register the company under the Companies Act 2013^[1] and obtain the incorporation certificate. 
2. The company should have a minimum of 2 crores of Net Owned Funds.
3. If the company had been running a similar business prior to the enforcement of the Companies Act, then the business needs to comply with the regulations prescribed by RBI. 
4. The company should possess entrepreneurial, technical and managerial resources.
5. The company should have the required capital to start the online lending business. 
6. The company must be incorporated as an NBFC.
7. The directors and promoters of the company must meet the fit and proper criteria. 
8. The applicant should have a website for the P2P business. 
9. The general character of the company’s management should not be discriminatory towards the general public. 
10. It is mandatory for the company to implement robust information technology business technology. 

Arrange the Necessary Documents 

List of Documents Required Completing the Checklist to Start a Peer-to-Peer Loan Business

The list of the documents required to obtain the Peer to Peer Loan License is given below- 

• Certificate of Incorporation of the Company 
• MOA 
• AOA 
• Website Source Code 
• Declaration by the directors and promoters meeting the fit and proper Criteria 
• Feasible Business Plan 
• Audited Balance Sheet of the Company 
• Net worth Certificate.

Follow the Proper Procedure 

The procedure to obtain the Peer to Peer Licence is given below –

• Obtain the Incorporation Certificate 

The first step is to obtain the incorporation certificate for which the applicant needs to apply for DSC, DIN and Name Approval from MCA through submitting the essential documents like Spice + Agile Pro and Declaration under INC -9

• File the Application with RBI along with essential documents 

The Applicant requires filing the Application along with the documents mentioned above and submitted to RBI

• Verification of Application and Documents by RBI

Once the applicant has submitted the application along with the necessary documents, the RBI will scrutinize and verify the application and documents.

• Issue of  License 

RBI will issue the License after successfully verifying the application and documents. 

Conclusion 

It can be concluded that Peer to Peer Loan Business can benefit the borrower and the lender, i.e. the business owner. Therefore it becomes essential to adhere to the Checklist for Starting a Peer to Peer Loan Business. 

Read our Article: P2P Lending Structure in India