Peer-to-Peer Loans Can Help You Finance Your Business Start-up

Peer to Peer LendingIf you’ve ever wanted to start your own business, either full or part time, you know that one of the biggest obstacles to starting a small business is raising start-up capital.

Last week, in an article entitled, Peer-to-Peer Loans Grow, the Wall Street Journal shared how a growing number of small business owners are getting loans through the use of peer-to-peer lending sites such as Prosper and Lending Club.

According to the WSJ, these sites “work like eBay-style marketplaces, matching prequalified borrowers to lenders.”

Together, Prosper and Lending Club have generated more than $500 million in loans over the last five years.

How Peer-to-Peer Lending Works


The borrower pays the peer-to-peer lending site a sign-up fee. The site prequalifies the borrower, assesses their creditworthiness, sets the interest rate, and posts the loan to the site.

Then interested lenders anonymously invest in loans they are interested in, in amounts ranging from as low as$25 to as high as $1,000. Lenders are paid back with interest (which is determined by the site during pre-qualifying). Most loans are for less than $10,000, but they can exceed $30,000.

Here are two examples, from the WSJ article, about how peer-to-peer lending works:

In November, Nansee Kim-Parker raised $20,000 on LendingClub.com in less than two weeks to open TokyoMoto, a San Francisco motorcycle-repair shop. After clearing a prescreening process, she posted details of her background and her business idea and attracted hundreds of small lenders from around the country. Her loan has a three-year fixed interest rate of 9.85%.

“It’s like a village, gathering support here and there,” says Ms. Kim-Parker, who calls traditional bank credit “unaffordable” for small businesses.

Lydia Hamilton-Monnie says she was turned down by three banks before raising $25,000 on Prosper last year to open a plus-size women’s apparel store in Milwaukee. With a three-year fixed rate of 12% on the loan, Ms. Hamilton-Monnie says she is on track to pay back her nearly 1,000 lenders by December 2012.

Peer-to-peer lending seems to be a great way for small businesses to get the capital they need without going through a lot of the hoops of a traditional lender – and perhaps at a better price.

And I like the excitement that is generated by dozens or maybe a hundreds of people anonymously partnering with you as investors in your business.

But this concept is not without its risks – at least for the lenders – because some peer-to-peer borrowers have defaulted on their loans.  Currently, the default rate on loans from Prosper and Lending Club is 3%.

Have you ever borrowed money, or loaned money, through peer-to-peer lending?  If so, please share your experience.  If not, would you ever consider it? Why or why not?

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Comments

  1. From
    Ramesh kamuni
    Hyderabad, India.

    Most of the banks were asking surety for getting loan.
    But what is about students or people from low middle class and poor
    students or people. how to get even small amount of loan if I don’t
    have surety from settled parson.
    I want help in getting educational loan for my education here in
    university of Hyderabad madam/sir.
    please try to help in getting loan for me.
    Please try to help if possible.

    Thanking you
    Yours truly
    Ramesh kamuni.

    • Life Compass says:

      Ramesh, thanks for your comment. I’ve been to India a few times, but I do not know anything about educational loans in India. I’d recommend checking with the financial aid office at the university, if you haven’t done so yet.

  2. Respected sir
    Thanking for you reply sir.In India educetional loans were giving to students But my problam is i have no regular income parson to give surity for the bank

    Ramesh kamuni.

  3. do you need a loan if yes contact us via email idiagdesmond@gmail.com

  4. Peer-to-peer (P2P) is a marketplace which provides a platform for investors to invest and earn high yield on their investment while borrowers to get loans hassle free with low rate of interest.
    I2IFunding is also one of the online marketplace which connects Investors and Borrowers to fund a project at an attractive rate of interest.

    • des mousses fruitées c est avec pleins de malice dans les yeux que je les deguste en genrale !! je te souhaite un bon weekend et j'en profite pour te remercier de tes vitssei… bises lOU

  5. Peer to Peer Lending in India is growing gradually and is now recognized by RBI. Peer to Peer Lending is a platform which connects trustworthy and reliable Borrowers with private investors.
    Rupaiya Exchange is one of the leading peer to peer lending platforms in India which uses cutting edge technology to check and facilitate good borrower profile so as to reduce the risk factor and create credibility in the lender’s mind.

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