Why this matters

P2P business loans bypass some traditional intermediaries, which can lower costs or speed funding—but they also create contract-level risks. In my experience advising small businesses, the largest problems come from undisclosed fees, harsh default clauses, and unclear servicing or assignment provisions that change who enforces the loan.

Quick checklist (read every line)

  • Interest rate, APR, and calculation method (daily, monthly, amortizing)
  • All fees: origination, platform, servicing, late fees, returned payment charges
  • Prepayment terms and any penalties or step-down schedules
  • Repayment schedule, amortization, and balloon payments
  • Collateral, security interests, and personal guarantees
  • Default triggers, cure periods, acceleration, and remedies
  • Assignment/transfer and platform insolvency language
  • Covenants, reporting requirements, and permitted uses of funds
  • Dispute resolution: arbitration clauses, venue, class-action waivers
  • Tax reporting responsibilities and any withholding rules

Detailed items to verify

1) Interest, APR and fees

  • Confirm the stated interest rate and the Annual Percentage Rate (APR). APR includes most finance charges and is the best single measure of loan cost. Ask the platform to show the APR calculation. (See CFPB guidance on comparing loan costs: https://www.consumerfinance.gov).
  • Identify all upfront and recurring fees: origination, underwriting, servicing, investor fees passed to borrowers, and any platform marketplace charges.

2) Repayment mechanics

  • Confirm the payment schedule (monthly/weekly), principal vs interest allocation, and whether payments are interest-only or amortizing.
  • Watch for balloon payments that leave a large final balance.

3) Prepayment, refinancing and early-pay benefits

  • Some contracts impose prepayment penalties or require payment of remaining interest. If you plan to refinance or pay early, get the exact payoff formula in writing.

4) Default, remedies and acceleration

  • Define what constitutes default (missed payment, breach of covenant, insolvency). Check cure periods and whether a single event triggers immediate acceleration.
  • Look for repossession, levy on collateral, cross-defaults with other debts, and fee stacking for collections.

5) Collateral and personal guarantees

  • If the loan is secured, confirm the collateral description, perfection steps (e.g., UCC filing), and priority relative to other creditors.
  • Personal guarantees are common for small businesses; understand guarantee scope (limited, full, or joint-and-several) and possible guarantor defenses.

6) Assignment, servicing and platform risk

  • Verify whether the loan will be held by investors directly, sold to a special-purpose vehicle, or assigned to another servicer. Ask who you will actually make payments to and how servicing changes are communicated.
  • Understand what happens if the platform becomes insolvent—are loans segregated, or could payments be delayed?

7) Covenants and reporting

  • Note affirmative and negative covenants (e.g., maintaining insurance, limits on additional debt, financial reporting). These can restrict business operations.

8) Dispute resolution and consumer protections

  • Arbitration clauses or class-action waivers can limit legal options. Confirm governing law and venue (important if the investor or platform is in another state).
  • State usury and business-lending rules may apply—ask whether the contract complies with local law.

9) Taxes and accounting

  • Confirm how interest will be reported to investors and to you. Business interest deductibility has rules under the Internal Revenue Code (consult IRS guidance or your tax advisor: https://www.irs.gov).

Practical steps before signing

  • Get the full promissory note, security agreement, and platform terms of service; don’t rely on summary pages.
  • Ask the platform for a sample contract or redline of final terms.
  • Have an attorney review: I routinely recommend legal review for clauses on acceleration, guarantees, and assignment.
  • Run a scenario analysis of cash flow: model missed payments, early payoff, and the cost of default remedies.
  • Compare offers across platforms; use our guide on how to evaluate platforms before borrowing: “How to Evaluate Peer-to-Peer Loan Platforms Before Borrowing” (https://finhelp.io/glossary/how-to-evaluate-peer-to-peer-loan-platforms-before-borrowing/).

Further reading and related FinHelp guides

Authoritative sources and a final note

This page is educational. For regulatory context see the Consumer Financial Protection Bureau (CFPB) general guidance on nonbank lending: https://www.consumerfinance.gov, and for tax issues consult the IRS: https://www.irs.gov. In my practice I’ve found contract review and a short legal consult usually pay for themselves by avoiding costly defaults or hidden fees.

Professional disclaimer: This article provides general information and does not constitute legal, tax, or financial advice. Consult a qualified attorney or tax professional for advice specific to your situation.