P2P lending is growing rapidly


When there’s a void, someone is likely to fill it, right? Sir Richard Branson is a case in point. The mastermind of Virgin Atlantic, Virgin Records and just about everything else Virgin is also a leader in a relatively new, fast-growing online business called peer-to-peer lending. You guessed it -- Virginmoney.com

With banks now mired in a credit debacle they created, Virginmoney.com is among several alternative online finance companies, with names like Prosper.com or Lendingclub.com, doing a reported thriving business, according to Reuters. Dubbed a P2P service, these ‘Net operations put people wanting to borrow together with those who want to lend. The borrower gets the money he wants and the lender gets a better return than he can find in the stock market or in any bank CD. Sounds like a win-win.

People looking to lend claim P2P is a good port in today’s financial storm. For example, in the past year, two San Francisco partners have invested almost a million dollars and received a return of more than 12 percent on the money they’ve lent so far, according to Trends Magazine. When Loanio.com began doing business only last October, more than 1,000 people signed up the first week. A larger site, LendingClub.com, has handled a reported $20 million in loans since late 2007.

While P2P lending has been around since 2001, there isn’t much uniformity in the way they operate. For example, Virginmoney.com offers mortgages but it mostly focuses on facilitating lenders and borrowers who already know each other -- sort of a friends and family model. Such relationships make the loans more secure, they say.

Totally different is San Diego-based FirstAgain.com. It makes loans from $10,000 to $100,000 on credit history, not FICO scores. Interestingly, FirstAgain.com doesn’t think much of credit bureaus or FICO scores and for good reason, according to Barron’s. When California Interest Research Group last sampled credit reports from the big 3 bureaus, they found eight in 10 contained errors. FirstAgain.com, along with most of the others, uses the latest fraud-detection technology, proprietary credit-scoring algorithms and lots of common sense in making loan decisions, says the company which, happily, encourages borrowers to finance their new boat purchase with them. Since 2006, FirstAgain.com has loaned over $100 million.

At least two of the P2P companies (Loanio.com & Prosper.com) are in the process of registering with the SEC in order to create a secondary market for their loans. Moreover, P2P’s aren’t limited to just consumer loans. Business loans are also in the mix for some. According to one projection, P2P companies will be handling $1 billion by 2010 and $9 Billion by 2017. In addition some cash-rich P2P sites could well look at acquiring conventional banks in the near future, significantly changing the current banking model. Now that would be interesting!

Check out P2P lending. While I don’t see floor planning in today’s P2P picture, these new breed of alternative finance companies just might be an answer for some of those solid boat buyers that are being blown off by banks today.


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