If you own property in a high-demand commercial zone, you may be waiting for the ideal time to develop it. Since large real estate projects are expensive propositions, however, they often require additional funding.
In some respects, gone are the days when commercial developers turned to financial institutions to fund their ventures. Today, a growing number of developers are opting for marketplace loans. Nevertheless, before you choose this type of financing, you may want to get a grasp on its potential advantages and drawbacks.
The nature of marketplace lending
Developers used to call marketplace loans peer-to-peer financing. Though, this term doesn’t really accurately define the lending model.
Marketplace loans use a crowdsourcing platform to find institutional, corporate or individual investors for a project. As such, this essentially allows developers to bypass the intermediary application process, regardless of whether a bank is the source of the loan.
Marketplace lending advantages
While every commercial lending transaction is unique, marketplace loans can present some clear advantages over traditional funding options. For example, you might experience:
- Fewer transaction fees
- Lower interest rates
- Faster processing times
- Less paperwork
Because this form of lending may provide quick access to funds without an extensive application process, it may seem a ready way to develop your plot. That being said, it’s not perfect.
Marketplace lending drawbacks
If you opt for crowdsourced funding, you may have little opportunity to develop positive working relationships with investors, which can increase the difficulty of securing necessary financial backing. Meanwhile, using a crowdfunding site leaves you at the mercy of the platform’s rules and restrictions, so raising capital could be restricted to certain types of activities, functions or projects.
Is crowdsourcing right for you?
As with most choices in life, marketplace lending has its downsides, yet its advantages often appeal to entrepreneurs who are ready to break ground on a new development.
Depending on your situation, you may have various ways to approach closing a deal. By comparing and contrasting your options, you can make an informed decision that works for you.