Right now one of the toughest things to do is borrow money. It doesn’t matter what you need the money for it seems the banks aren’t interested in lending to anyone. So what sort of options do you as a consumer have when the banks refuse to play ball? I offer up one suggestion on my commercial real estate blog which is to ask smaller banks for money. I would like to offer you another avenue to borrow money here.
Prosper is a peer to peer lending service that allows average people like you and me to lend directly to each other. The loans are for 3 years and a maximum of $25,000. This won’t buy a house or anything but it can help refinance credit cards to lower rates, give you some funds to fix up your real estate, or give your small business that little boost it desperately needs right now. Here’s how the program works:
The “borrower” creates a listing on the Prosper site that includes credit score, how much you would like to borrow, and what you will be using the money for. You also indicate what interest rate you are willing to pay. “Lenders” then look at your profile and analyze the risk versus return. They can offer to fund a portion of the loan or the entire thing and they also input the interest rate they expect. This interest rate could be lower if they think the borrower is less risky or they could bid the interest rate higher. It is basically an auction for lending money. Notice I said “lenders” plural? The loan can be funded by many different people to total your maximum loan amount. Once the total amount of funds asked for have been committed and the auction is closed Prosper then takes all of the lowest interest rates on bids up to the total dollar amount and consolidates it into one 3 year loan. Even though many people are lending to you, you just make 1 payment and then Prosper makes sure all the lenders get paid.
There is also a social network aspect to Prosper. If you can manage to get in with a lending group then you can get people to bid interest rates even lower. This is because groups are selective and if you are accepted you have been vouched for since the reputation of the group can be made or broken by you paying or not paying your notes.
If you are one of the lucky few with piles of cash lying around and nowhere to invest Prosper may also be for you. You have the option to diversify your funds greatly. Rather than sticking $10,000 in a CD or some other poorly performing investment vehicle you could lend $1,000 to 10 people and get a higher rate of return and diversify your investment.
Categories: Business Development, Financing.
This is a great article! Prosper has been around since February 2006. I have been a lender and borrower since June of 2006. Experiencing both sides of this auction has given me the confidence to write that this is a viable and beneficial market. Prosper.com can, and will, easily scale its business exponentially.
After three years of lending I have plenty of paid off notes and borrowers who have never missed a payment. I sent e-mails asking borrowers that have never missed a payment if I could post there screen name on our group web page which can be found here:
http://www.prosper.com/groups/group_home.aspx?group_short_name=IEC
The founder of Prosper.com is Chris Larsen a Stanford graduate who has made many changes to the lending laws in the state of California:
http://en.wikipedia.org/wiki/Chris_Larsen
Prosper is not immune to misfortune but they have many tools designed to mitigate risk and maximize satisfaction.
Wishing you all success in your business endeavors.