Peer-to-Peer Lending in Australia: An Alternative for Borrowers

Is ADS.finance a peer-to-peer lending platform? No

ADS.finance is not a peer-to-peer lending platform. It does not pool money from the public, does not lend money and takes no investments. It is a loan marketplace, and an alternative route for borrowers who want finance from someone other than a bank: you post one loan request, ADS checks it, and the Finance Providers in its network can ask you about it.

The network is 200+ Australian Finance Providers: private lenders, non-bank lenders, mortgage brokers and commercial finance brokers. Each one sets its own rates, fees and lending criteria. ADS.finance does not give financial or credit advice and does not recommend any lender or loan.

What is peer-to-peer lending?

Peer-to-peer lending, usually shortened to P2P lending, is borrowing money that investors provide through an online platform, rather than from a bank lending out its customers' deposits. The platform finds and assesses the borrowers; the investors put up the money.

The name suggests one person lending to another, and that is the idea it grew from. Depending on the platform, the money may come from individuals, from larger investors such as funds, or from both. As a borrower you usually deal only with the platform and never learn who the investors are.

The same model is also called P2P loans, peer lending or marketplace lending, and is offered through peer to peer lending apps and websites alike. The channel matters less than three questions: who lends, who decides, and what the loan really costs.

How do peer-to-peer lending platforms generally work?

Every platform has its own process, but the broad steps are similar.

1. You give the platform your loan details, usually online or through an app, and consent to the checks it needs. That usually includes a check of your credit file.
2. The platform assesses you against its own criteria: income or trading figures, existing debts, credit history and, for a secured loan, the property or asset offered as security.
3. If you meet its criteria, the platform gives the loan a risk grade or category and sets the interest rate and terms it will offer you.
4. Investors fund the loan, either by choosing individual loans themselves or by letting the platform spread their money across many loans automatically.
5. Once the loan is funded, the money is paid to you, often after the platform's establishment fee has been taken out of it.
6. You make repayments to the platform. It keeps its fees and passes the rest, principal and interest, to the investors who funded your loan.

Where the platform makes its money

A platform generally earns fees on both sides: from borrowers, through establishment and other loan fees, and from investors, through a service fee taken out of the interest they receive. Each platform sets its own fees, so read its fee schedule rather than assuming.

Who carries the risk

In many P2P models, if a borrower stops paying, the investors bear the loss rather than the platform. For you, missed repayments still have the usual consequences: default fees, collection action, a mark on your credit file and, for a secured loan, the lender acting on the security.

Social lending, person-to-person loans and debt-based crowdfunding

Social lending

Social lending is an older name for peer-to-peer lending, from the idea of a community of people lending to each other. When you see social lending in Australia, it usually means the platform model described above. Some community organisations use similar words for small not-for-profit loans, which work quite differently, so check what is actually on offer.

Person-to-person loans

Person-to-person loans can mean a platform loan, or simply one person lending directly to another: a family member, a friend or a private individual. A direct loan has no platform in the middle, so nobody assesses it, sets standard terms or collects repayments unless you arrange that yourselves.

If you borrow directly from an individual, put the terms in writing: the amount, the interest, the repayment dates, what happens if a payment is late, and any security. Each side having its own solicitor protects the relationship as much as the money.

Debt-based crowdfunding

Debt-based crowdfunding is the business version of the same idea. A business or property project raises money from many investors as a loan, repays it with interest over an agreed term, and keeps full ownership. In practice it overlaps heavily with business peer to peer lending.

How equity crowdfunding differs

Equity crowdfunding is not a loan. The business sells shares to many investors, so there are no repayments, but those investors become part-owners and share in future profits. Reward or donation crowdfunding is different again: supporters pay in advance for a product or simply give money, and nothing is repaid as debt.

Why borrowers look at P2P loans instead of a bank

Borrowers often look at peer to peer loans because a bank has said no, or because they expect it to. What they want is an alternative: money from somewhere other than deposits, and a lender whose rules may fit their situation better than a bank's.

• A different assessment. Income a bank finds hard to verify, such as self-employed or seasonal earnings, may be looked at in a different way by a lender with its own criteria.
• A past credit problem. Some borrowers with a default or late payments on file look for a lender that weighs the reason and what has changed since.
• Structure. A shorter term, interest-only repayments or a loan for a purpose that a bank's product rules do not cover.
• A simpler online process, with the loan details, documents and updates kept in one place.

Different does not mean easier or cheaper. A lender taking risk a bank will not usually charges more for it, through a higher rate, higher fees or tighter terms. The real question is whether the loan, at its full cost, does a job that is worth that price.

Peer to peer lending: the trade-offs to think about

Who actually makes the credit decision

With a platform loan, ask who assesses you and who your contract is with. It may be the platform, a related company that writes the loans, or a trust that holds them for investors. That business is the one that can agree to a change, an extension or a hardship arrangement if your circumstances shift.

What happens if the platform fails

A platform is a business, and businesses close. Generally your loan does not disappear if it does: you still owe the money under your contract, and another company may take over collecting repayments. Ask the platform what its arrangements are, and keep your own copies of the contract, statements and payment records.

Fees, early repayment and changes

• Establishment or origination fees, which may be deducted from the money paid to you, so you receive less than you borrow.
• Ongoing account or service fees, plus late payment and dishonour fees.
• Early repayment fees or break costs, which matter if you plan to sell or refinance before the term ends.
• Whether the loan can be varied, for example by extending the term or pausing repayments, and what that costs.

Personal or business purpose

Credit for personal, domestic or household purposes, or to buy, renovate or improve residential property as an investment, is consumer credit regulated under the National Credit Code. Credit wholly or mainly for business purposes generally falls outside it. If your loan is for a business, read the documents with that in mind and have them reviewed by your own solicitor.

P2P lending vs private lenders, non-bank lenders and brokers

Each of these is an alternative to a bank, but they differ in two ways that matter to you: who is behind the money, and who decides whether you get it.

Peer-to-peer platform

The money comes from investors, matched to your loan by the platform. The platform usually sets the credit criteria and makes the assessment, and you deal with the platform, not the investors.

Private lender

A private lender is an individual, company or fund lending its own money or money it manages for its investors. Some private lenders do pool investor money, so the line with P2P can be thin, but the lender itself assesses your loan and decides. Private loans are usually secured against property and suit short-term needs with a clear exit.

Non-bank lender

A non-bank lender is a lending business that does not take customer deposits. It funds its loans from institutional sources rather than savings accounts and sets its own credit policy, often with products built for borrowers outside bank criteria, such as low doc loans or loans for people with past credit problems.

Mortgage broker or commercial finance broker

A broker does not lend. A broker works out what you need, prepares the loan with you and takes it to lenders it deals with, and the lender decides. Ask how the broker is paid, whether by the lender, by you or both, and which lenders it can and cannot reach.

Whichever route you take, the decision is made by whoever puts up the money. A broker or a marketplace can bring your request to a lender, but cannot decide for it.

Business peer to peer lending alternatives from $100,000

Many people searching for business peer to peer lending need a larger amount for a property, a project or a business. That is the kind of finance the ADS.finance network deals with, through lenders and brokers rather than a platform: property, commercial and business loans from $100,000.

• Home and residential investment loans, including for borrowers whose situation does not fit a bank's criteria.
• Commercial property loans for offices, shops, warehouses, industrial sites and mixed-use buildings.
• Development and construction finance for residential and commercial projects.
• Bridging loans to buy before you sell, or to cover the gap until a sale or refinance settles.
• Business loans and working capital, for example to buy a business, equipment or stock.

Secured or unsecured

Larger loans from private and non-bank lenders are usually secured, most often against property. The lender compares the loan with the value of the security, known as the loan-to-value ratio or LVR. The smaller the loan against the property's value, the more room the lender has if something goes wrong.

Unsecured business lending exists, but it generally comes with smaller limits, shorter terms and a higher cost, and directors are often asked to stand as guarantors for the company's debt.

Your exit

For short-term private finance, the lender will want to know your exit: how the loan will be repaid at the end of its term, whether by selling the property, refinancing with a bank or another lender, or from business income. A believable exit on a realistic timetable is often what the decision turns on.

Peer to peer personal loans: what ADS.finance does not do

ADS.finance does not do personal loans. If you need a smaller loan for a car, a holiday or to consolidate credit cards, the Finance Providers in this network are not the right fit, and you will need a different provider.

Personal loans are consumer credit, assessed mainly on your income, living expenses and credit history. Wherever you look for one, compare the total you will repay over the whole term, not just the interest rate.

What to check before borrowing from anyone outside a bank

These checks are not specific to peer-to-peer lending. They protect you with a private lender, a non-bank lender, a platform or an individual.

1. Who the lender is. Get the legal name and ABN of the business lending you the money and of anyone holding your security, and check them yourself. Know who you sign with and who you will deal with if things change.
2. The total cost to your exit. Add up interest, establishment, line or account fees, valuation, legal costs, discharge fees and any early repayment costs over the time you actually expect to hold the loan.
3. Default and extension terms. Find out what counts as a default, whether a higher default interest rate kicks in, and what an extension costs if your sale or refinance runs late.
4. The documents, with your own solicitor. Have a solicitor who acts for you, not the lender, read the loan agreement, the mortgage and any guarantor documents before you sign.
5. No large upfront fees. Valuation and legal costs at a known stage are normal. A large commitment or processing fee demanded before you have a written offer, or paid to someone you cannot verify, is a warning sign.
6. Your repayment plan under pressure. Test your exit against a slower sale, a lower valuation or a refinance that takes longer than you hope.

Are peer to peer lending apps and websites legitimate?

Many genuine lenders and platforms operate online, but so do scams that borrow the language of P2P lending. Whether you find a lender through an app, a website, social media or an unexpected call, stop and check before you share documents or pay anything.

• You are asked to pay a fee, a deposit or insurance before any loan is paid to you.
• The lender promises a yes before it has seen your details, or says your credit history does not matter at all.
• You cannot find a legal business name, an ABN or a physical address, or the details do not match.
• You are told to pay into a personal account, in cryptocurrency or by gift card.
• There is pressure to sign today, or to keep the offer from your solicitor or accountant.

Any one of these is a reason to walk away. A genuine lender will put its offer in writing, give you time to have it reviewed and tell you exactly who it is.

When peer-to-peer or private finance is the wrong choice

Alternative finance is the wrong tool when a bank would lend to you on standard terms. If you have stable income, a clean credit file and enough deposit or equity, start with mainstream lenders or a broker who can reach them. The extra cost of alternative finance buys flexibility you would not need.

• You have no clear way to repay a short-term loan at the end of its term.
• The numbers only work if everything goes to plan, with no room for a delay or a lower sale price.
• You are borrowing to cover ongoing losses rather than to fund something that will earn income or be sold.

In those situations, more borrowing can make the problem harder to fix. A conversation with your accountant or a financial counsellor may help more than a new loan.

Looking for a P2P lending investment? ADS takes no investments

Some people searching for P2P lending want to invest, not borrow. ADS.finance does not take investments from the public. It does not pool money, does not offer returns and does not let individuals fund loans through the site, and it cannot advise you on investing.

If you are considering investing through any lending platform, remember that a loan you fund is not a bank deposit. If borrowers do not repay, you can lose some or all of your money, and you may not be able to get it back before the loans end. Get independent advice before you commit.

Lending businesses are a different matter. If you run a private lending business, a non-bank lender, or a mortgage or commercial finance broking business, you can join the network as a Finance Provider. ADS checks each provider's ABN and business details before an admin approves them.

How to get a loan through ADS.finance instead

For property, commercial or business finance from $100,000 you can post one loan request rather than comparing platforms one by one. ADS checks every loan request before it goes live to the network. Finance Providers can ask you about it, and one can take it on and contact you. You are never obliged to go ahead.

There is no credit check to post, because ADS.finance does not access your credit file. A lender you later choose to deal with generally needs your consent before it checks your credit file.

What to put in your loan request

• The loan type and the amount, and roughly what the property or other security is worth.
• Where the property or business is, by suburb or postcode.
• What the money is for, in a sentence or two: buying, refinancing, building, bridging or working capital.
• How soon you need the money, and any settlement date you are working to.
• Your exit: how and when the loan will be repaid.
• Who is borrowing, such as you personally, a company or a trust, and anything a lender will find anyway, such as a past default or a tax debt, with a line on why.

A clear, honest request lets providers see whether it fits their criteria before they contact you, which saves time on both sides.