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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.
Table of Contents
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.
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.
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.
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.
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.
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.
This loan system is quite flexible compared to the traditional lending methods, which are considered quite rigid and complex.
The checklist comprises the following
The businessman needs to fulfil the following criteria to obtain a Peer-to-Peer Lending License –
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-
The procedure to obtain the Peer to Peer Licence is given below –
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
The Applicant requires filing the Application along with the documents mentioned above and submitted to RBI
Once the applicant has submitted the application along with the necessary documents, the RBI will scrutinize and verify the application and documents.
RBI will issue the License after successfully verifying the application and documents.
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
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