Peer to peer lending sites, a rapidly growing industry, let consumers bypass banks and get personal loans through their computer at home. Image from Wikimedia Commons.
Peer-to-peer lending sites are starting to come into their own. Peer-to-peer lending, a form of crowdsourcing where qualified loan borrowers can solicit personal loans from investors, has been growing as flagship sites like LendingClub and Prosper have been rapidly expanding.
Peer-to-peer lender Prosper makes big haul from investors
Prosper.com, one of the largest peer-to-peer lending operations, recently announced a fairly large round of venture capital raising, according to the Washington Post. The growing site managed to raise $17.2 million in funding from new investors Crosslink Capital and Draper Fisher Jurvetson. Previous investors also threw some money in, including TomorrowVentures. TomorrowVentures is the venture capital firm founded by Eric Schmidt, the current Google CEO. The company has been growing by leaps and bounds in the past few years, having amassed a loan portfolio of more than $236 million. That includes $5 million in April alone, according to the Wall Street Journal.
Prosperous business model
The peer-to-peer lending model is a fairly recent innovation. Borrowers who qualify for loans through the site announce they need a loan, give the reason and request an amount. Investors then pledge various amounts of capital that can range from less than $50 to a few thousand. Prosper began just more than five years ago and has done hundreds of millions in loan business. LendingClub.com, another high-profile peer-to-peer (p2p) lending site, has similarly been growing steadily. LendingClub grew by 24 percent in 2010 and lent $17.5 million in loans in April of this year alone. LendingClub has captured nearly 80 percent of the market since launching in 2007, according to ABC, growing at the rate of 10 percent per month. At the beginning of 2011, the site had done $204 million in loan business.
Not subprime loans
Not everyone is eligible to borrow installment loans through these sites. Loan applicants are subject to a credit check upon applying for a membership, and neither Prosper nor LendingClub will lend to a borrower with a bad credit score. Lenders can also ask prospective borrowers about incidents in their credit history, so anyone looking to pull a fast one is not going to get far. LendingClub won’t accept customers with a credit score lower than 660. Prosper states credit is a factor for prospective borrowers and that Prosper is good for borrowers “if you have good credit.” Neither of these sites benefits from Federal Deposit Insurance Corporation backing, and lenders have to be discerning.
