Understanding Lending

Overview

What it means to lend:

To grant someone the use of something on the understanding that it will be returned.

In the financial sector there are a range of lending institutions that specialise in providing finance for borrowers.

There are two main types of lending institutions, namely banks and non-banks. These institutions offer an array of services to individuals looking to borrow funds.

Recent years have been characterised by a risk aversion on the part of banks globally. These institutions have also been reluctant to issue small business loans, leading to many people choosing other funding models.

Peer-to-peer lending

This involves lending money to individuals or businesses through online services that match lenders directly with borrowers. Lenders usually offer unsecured personal loans through this lending mechanism.

This type of lending has lower overheads as well as lower interest rates.

What you need to know about lending as a borrower:

You need to understand the fees or potential hidden fees from online lenders.

Research the qualities of each lender. Make sure that the company you choose is reputable and registered with the relevant regulatory bodies.

Tips for when you want to lend:

Numerous people are trying to find alternative ways to get maximum returns on their investments. Some people are turning to lending as a way of getting the maximum potential on their money.

The private lending business model is most successful when you focus locally. Invest in what you know and where you know first. You should be specific in your advertising and marketing, so that you don’t over-extend your services and make promises you can’t keep.

You should strive for total transparency.

Before lending to family members and friends, you should discuss other options. You also need to only lend what you can afford to lose. Be clear about your expectations and get it in writing.