Peer to peer lending is also known as social lending and
person to person lending. It is a way for those who are not interested in standard
lending relationships to borrow money.
The Peer to Peer Lending Model
Peer to Peer lending is almost entirely internet based. Borrowers who are
seeking funds place their proposal up on line with the amount of money they want to borrow.
Investors join together and bid on the amount they are interested in lending. Investors
state what interest rate they are willing to fund and at what amount. In most cases,
multiple investors will invest in a single project.
Pros of Peer to Peer Lending
One of the benefits of peer to peer lending is that each person who reads the loan
takes into consideration things other than credit ranking. These considerations could
Social change - if you have an idea that would make a significant
social statement and are seeking funding to pursue it Peer to Peer lending could be the
Student Loans - many students are finding that peer to peer lending
is the secret to securing loans for education.
Quick Turn Around - most person to person lending groups respond
Peer to Peer lending is almost always unsecured. This makes it easier than
going to a bank or taking advantage of extremely high rate
Pay Day Loans. Most
projects are funded in the $8,000 to $20,000 range.
Cons of Peer to Peer Lending
P2P lending often requires a lot of additional information that might not be required
by banks. In addition to credit history peer to peer lenders will also run background
checks. You may be asked for information numerous times during the process. Another
downside for some people who might consider peer to peer lending is the privacy aspect.
You will have to publish information about your business and your idea online.
Who Can Use Peer to Peer Lending?
If you are considering peer to peer lending you might be surprised at who can take
advantage of these types of loans:
Students - who are interested in increasing available funds for student loans
Entrepreneurs - who are interested in starting a new business
At Home Business - for those who are interested in expanding a home based business
© iStockphoto.com - Yuri_Arcurs
Why Use Peer to Peer Lending?
Person to Person lending is most beneficial for those who have business plans that
are not suitable for banks or venture capital companies. The interest rates typically
fluctuate between 8% and 15%. Another advantage of peer to peer lending is
that typically you will not give up equity in your business to secure the loan.
If you have a business idea, believe you are a good credit risk and cannot secure
financing through traditional methods, P2P lending may be an option you can use. Peer
to Peer lending allows much more flexibility in terms of types of projects funded. Peer
to Peer lending is still fairly new in the United States but it is becoming a growing
See also: Small
Business Bank Loans