How can peer to peer lending help you save to start your own business?

Known as the ‘workism’ generation, millennials are more and more starting to focus their lives around their jobs. No longer do they work to live, but live to work.

It’s led to a shift in the way people view the world of work. With more time spent on the clock, many look to get a sense of purpose from what they do to earn money. Others want to satisfy a craving to see the world without having to cram it all into a few days of annual leave – 80% of millennials reported seeing a move overseas as an opportunity to develop professionally and gain skills outside of their job, such as languages or life experiences.

We’ve seen, too, the emergence of the gig economy and the side hustle. Whether it’s as a delivery driver, a drag queen or estate agent, 37% of millennials now operate a side hustle or sideline business. And, while sometimes this is down to necessity, many people see it as the ideal way to start growing a business without losing the security of full-time employment. All these changes are contributing to a shift towards entrepreneurship and an ever-rising number of people choosing to go it alone. It’s estimated that by 2020 half of workers in the UK will be freelance in some capacity, with those aged 26-29 becoming their own boss going up by 66% from 2008.

Taking the plunge 🛀

There’s still plenty of barriers to starting out as an entrepreneur. For some, it might be simply building up the confidence. Others may struggle to find the time. One thing that will likely affect all those going solo, though, is getting the funds together to finance the move.

There’s lots of ways to do so. You could look to get a loan or crowdfund your project. You might decide to use zero-interest credit cards, or source donations from friends or family. However, these could see you give away a stake in your business, or going into debt.

Another option is to self-fund, using money of your own either entirely or in combination with one of the above. Of course, building up enough money will mean a lot of work and patience, but the benefits of maintaining full control of your business, or not having to tie yourself down to rigid loan repayments, can be huge in the long-term.

Finding your feet 👠… and some cash

If you already have some funds set aside, peer-to-peer (P2P) lending could help supercharge your efforts to start out on your own. It works by connecting those looking to invest their money with those looking to borrow – borrowers could be consumers, property investors or small businesses. You then lend out your cash in return for interest paid by the borrower.

P2P lending has grown substantially over the past decade, and has carved its place as part of the investment mainstream. Over £9 billion of loans have already been made through peer-to-peer platforms in the UK, and a recent report by Standard & Poor said it expects the UK’s peer-to-peer sector to to see “significant further growth” on the back of growing investment from institutional funds, such as the British Business Bank.

By starting early and through the magic of compound interest, you could grow your pot into a sizable chunk to kick-start your life as an entrepreneur earlier than you think. Let’s say you had £4,000 already set aside. If you decided to invest that with an annual return of 5%, and continued to invest an extra £100 from your pay cheque each month, five years later your pot will have grown to just under £12,000.

Remember though, all investment comes with risk, and peer-to-peer lending is no different. It’s possible you won’t get back the funds you put in, or the interest you were expecting. Also, unlike with money kept in your savings account, P2P investments are not covered by the Financial Services Compensation Scheme (FSCS).

Starting out on your own is going to be a scary but exciting experience. Getting the money to do so will likely to be one of the hardest parts of it. However, at this stage, it’s going to be just as important as crafting your killer business idea.

To find out how peer-to-peer lending could help you self-fund your business, visit growthstreet.co.uk/investing.

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(Your capital is at risk when you lend to businesses. Lending through Growth Street Exchange Ltd is not covered by the Financial Services Compensation Scheme.)

Written on in Investing