Thaagp.org Niche News

pstrongWhat is Peer to Peer Lending?nbsp;/strong/p
pPeer to peer lending is when one individual or business makes a loan to another business or individual. nbsp; A variety of websites have cropped up to serve as matchmaking vehicles, to bring together the individual lender and individual borrower./p
pItrsquo;s part of the ldquo;social entrepreneurshiprdquo; trend going on right now, where entrepreneurs combine making money with social goals./p
pThe sites that facilitate peer to peer lending include Prosper.com,nbsp; which focuses on loans to individuals and entrepreneurs here in the U.S., and Kiva.com, which focuses on loans to entrepreneurs in third world countries./p
pstrongFrom the Borowerrsquo;s Perspective/strong/p
pFrom a borrowerrsquo;s perspective, peer to peer lending can be a godsend.nbsp; If yoursquo;re an entrepreneur in Africa who needs $500 to buy some goats to start a goat milk farm, a peer to peer lending outfit like Kiva may be your only choice.nbsp; And that $500 could mean the difference between your family starving or being self sufficient./p
pFrom the perspective of someone here in the U.S., the needs and impact are going to be different.nbsp; The Dallas Morning News writes about a small sporting goods business that got a $25,000 loan through Prosper.com.nbsp; Apparently Prosper.com is seeing more interest from small business owners now that credit is getting tighter./p
pHowever, I donrsquo;t see peer to peer lending taking the place of credit cards, receivables a href=http://www.facteon.com/factoring/a or traditional business loans anytime soon./p
pWhile a one-time loan through something like Prosper.com may be good, as a long-term source of funding your business operations such as factoring can become, I just donrsquo;t see it.nbsp; Because itrsquo;s still a loan, whereas factoring is your money and yoursquo;re just getting the use of it much sooner./p
pstrongFrom the Lenderrsquo;s Perspectivenbsp;/strong/p
pFrom the perspective of the individuals who lend money to others peer-to-peer, here is where another challenge comes in.nbsp; If you want to lend a small amount such as $300 to an entrepreneur in a developing country, most people will think of that as kind of charitable contribution.nbsp; You probably wonrsquo;t even worry too much about getting repaid.nbsp; Your intention is to help out and the amount is small enoughnbsp; that the risk is minimal./p
pContrast that with the ldquo;lendersrdquo; at something like Prosper.com, who from the Dallas Morning News story cited above are in it for investment purposes.nbsp; Now, all looks rosy as long as borrowers are repaying their loans.nbsp; But what if they stop paying?/p
pThe way Prosper works, a bank actually makes the loan and the ldquo;lenderrdquo; buys a participating lender interest.nbsp; The website suggests creating a portfolio of multiple loans in which you have a small ownership interest in each, to spread out your risk.nbsp; But banking is a funny business, and high default rates can hit even the best of banks.nbsp; And letrsquo;s not even talk about the fraudsters who fraudulently apply for and receive loans mdash; even the best of banks can be the victim of fraud, too.nbsp; Things can get ugly quick if you start experiencing defaults./p
pLoan participations are for banks that understand the risks, not individuals who may not.nbsp; From my banking days when I was involved in many loan participation/loan sale transactions, I know that even banks can end up suing over a participation in a portfolio that goes bad, on the basis of insufficient underwriting, fraud, etc.nbsp; I wonder how many of those individual ldquo;lendersrdquo; really are prepared for the risks, or if they will start filing lawsuits should they start losing money?/p
pTime will tell./p