Skip to content

What is Peer-to-Peer Lending (P2P) and How Does it Work?

What is peer-to-peer lending (P2P)? 

Peer-to-peer (P2P) lending relies on financial technology platforms that allow you to borrow directly from others instead of from a bank or financial institution.  

Investors sign up to an online P2P platform, agree to lend an amount, and then set their terms, interest rate and risk tolerance within the confines of the platform. You also sign up and apply for a loan. You then choose the offer that suits your needs and make repayments through the platform, which usually takes a fee from investors and loan applicants. Investors earn money through interest.

Why peer-to-peer lending can be useful 

Peer-to-peer lending can be helpful for you if you don't have the cash flow history, credit score or collateral needed to qualify for a conventional loan. For lender-investors, P2P lending often offers a higher rate of return than a savings account or term deposit. For you, the cost of the loan might be less than other forms of borrowing. 

Benefits of peer-to-peer lending for businesses

The key benefits of peer-to-peer lending for businesses include speedy approvals, accessibility for non-traditional borrowers and the ability to shop around for lower interest rates. 

Fast approvals 

Because P2P lending works via online platforms, with automated functions, applications and funding often go through more quickly than with a traditional lender.

Alternative funding 

If your business is just starting, you don't have a strong credit score, or you lack the collateral needed for a secured loan, a P2P loan may be an alternative finance option. 

Flexible rates and terms 

While the standard rates on a P2P platform are usually higher than those of a conventional lender, the range of loan options available means you can shop around for different interest rates, repayment schedules and terms. 

Disadvantages of peer-to-peer lending for businesses

The disadvantages of peer-to-peer lending include higher default interest rates, lower loan amounts and the fact that you can still be denied funding if your application details don't resonate with lenders. 

Higher interest rates 

Many P2P platforms have a high default or standard interest rate compared to traditional lenders. However, most platforms allow lenders to set lower rates if they want to. 

Lower loan amounts 

Many P2P platforms offer loans up to a set limit, which means they won't suit every borrower's needs. 

No guarantee of funding 

While P2P loans tend to be more accessible than traditional loans, your loan application could still be denied based on your credit history or other factors. 

What can you use peer-to-peer loans for? 

Peer-to-peer loans are generally a no-strings-attached form of finance. You can use them for any business activity — from equipment financing or property purchases to staffing, marketing or other business costs. 

Where can you get a peer-to-peer loan? 

You can get a peer-to-peer loan through an online P2P platform that connects investors with borrowers. There are several platforms available in Australia and New Zealand, including:

Society One

Society One is the largest P2P platform in Australia, offering loans of up to $50,000 unsecured and up to $70,000 secured. Fees and interest rates vary between lenders.  


Billed as a way to ‘bring big ideas to life,’ Australian-based Plenti boasts a 10-minute application process and loans of up to $50,000. 

ThinCats Australia 

Originally a UK brand, ThinCats recently branched out to Australia. Unlike many P2P lenders, ThinCats focuses on small businesses, offering loans of up to $300,000 with terms of up to five years. 


NZ-based Squirrel offers mortgage advice, savings accounts and P2P lending. 


Zagga offers fast application turnaround, flexible terms, and personal and business loans. 


Harmoney was the first platform to get a New Zealand P2P license in 2014. Now available in Australia, Harmoney offers loans of up to $70,000 with terms of up to seven years.   

Questions to ask when considering peer-to-peer lending

If you're considering peer-to-peer lending as a finance option for your business, knowing what you're signing up for is essential. 

Here's what to check with your platform or lender before you make the decision: 

What are your repayment schedules? 

Make sure the repayment schedule — including monthly repayments and the overall length of the loan — fits your needs and your ability to make payments. 

What are your interest rates?

While most P2P platforms have a default interest rate, you can shop around and find a lower rate, depending on the specific investor and other loan terms. 

How much can you borrow? 

Every P2P platform has lending limits, with loans between a couple of thousand and hundreds of thousands of dollars.  

An example of peer-to-peer lending (P2P)

What does peer-to-peer lending look like in practice? Here's an example of the process: 

Tina owns a business that makes flavoured coffee sachets and has the chance to supply a big chain of cafes. She wants a loan to buy new equipment to speed up her production process and needs the funds quickly, or the sale could fall through. She signs up to a peer-to-peer lending platform. 


Tina completes an online application on her chosen P2P platform, including details about her business, the loan amount she needs and her preferred repayment schedule. 


The platform looks at Tina's application, including factors like her credit score, income and projected profits, and sets a risk rating for her loan. The platform approves the loan within 48 hours. 

Loan offering 

Tina's loan request is loaded onto the platform for prospective lenders to view. Multiple lenders offer Tina a loan based on her profile details. 

Loan agreement 

Tina picks the loan offer with the best rate and accepts it. Funds are transferred into her account within 24 hours. 

Payments and interest 

Tina makes loan repayments through the P2P platform, which passes on interest payments to the investor.

Peer-to-peer lending FAQs

What are the main pitfalls of peer-to-peer lending? 

The main pitfalls of peer-to-peer lending are higher interest rates and lower loan limits than other financing.

Yes, peer-to-peer lending is legal in Australia and New Zealand. In both countries, P2P platforms are highly regulated to protect borrowers and lenders. In Australia, P2P platforms must hold an AFS licence and Australian Credit Licence, while New Zealand platforms need to be registered with the Financial Markets Authority.  

Why do people use peer-to-peer lending? 

Businesses and individuals use peer-to-peer lending because it's a quick, simple way to access funding, particularly for people without collateral or credit history. P2P platforms often have lower lending requirements, a range of interest rates, and quick application turnaround. 

More business insights with MYOB 

Whether you're applying for a peer-to-peer loan or considering another form of business finance, having a firm grasp on your financial position is crucial — and MYOB can help. Our accounting software helps you manage your finances with a full suite of small business accounting tools. The built-in analytics and forecasting options also give you the insights you need to make considered financial decisions. 

Ready to rework your finances? Get started with MYOB today. 

Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.

Related Guides

Arrow leftBack To Top