Peer-to-Peer (or P2P) Lending is a form of private lending and occurs when individuals loan money to other individuals without going through a bank or traditional intermediary. P2P lending has been popularized with the use of the internet because the linking of borrowers to "lenders" is possible on a larger scale. Using these internet sites, borrowers can get better terms and access to more capital than before, and lenders can have access to a larger number of lending situations and earn higher returns.
And as can be expected, there are several popular websites that connect borrowers and lenders directly, such as:
The downside of P2P lending is that supposedly less than 10% of loans applied for on these sites get funded. And you have to pay back the loans. If you are a lender you do need to screen the borrowers who you are lending to and not rely on someone else to do the due diligence (underwriting).
With crowdfunding, on the other hand, entrepreneurs can access capital that they don't have to pay back, but rather provide rewards for those who give money as a donation to the project. One's chances of raising capital through crowdfunding are much higher than with P2P lending. Experts say that 50% of entrepreneurs who try to raise crowdfunding successfully do so.
With regards to rewards, by offering something to the people who donate fund to the project (such as future redemption of the product or service), you are creating customers by providing discounts, prizes, gifts and bonuses.
A large percentage of the money raised will likely come from friends, family, and people in your existing contacts and promotion of the projects is an absolute must. However, crowdfunding sites give you an organized and safe way to advertise the opportunity, and people can see the social proof of others getting on board and funding your project.
Examples of crowdfunding sites are:
Selecting crowdfunding as a method of financing your venture does not prevent you from asking for a business loan on a P2P site as well. Nowadays, it often takes multiple sources of funding to fully capitalize your project. The nice thing about these two methods is they are not mutually exclusive and won't diminish your borrowing capacity through other methods as well.