Prosper.com and who needs a bank?

image Person to person micro finance is a trend that is definitely catching on. One site that is getting a lot of attention is prosper.com. It connects borrowers with lenders, and is rapidly becoming a viable source of seed capital for startups and small businesses.

Previously, we have written about Kiva, the P2P micro finance system that is all the rage now.

imageThe prosper.com system works like a reverse auction. A borrower posts a listing for the amount that they’re interested in borrowing, the time that they need the money for, and the maximum interest rate that they are willing to pay.

Lenders bid the amount that they’re willing to lend along with the interest rate. At the end of the auction the lowest bids are accepted and combined into a single loan.

The point to note is that the lender is not really lending the money. The borrower is actually getting the loan from prosper.com. In turn Prosper is selling the loanto the lender.

prosper.com microfinance loan for startups small business

The prosper.com site charges only when funding is closed. Fees for the borrower range from 1% to 3% of the loan (or $25, whichever is greater) depending upon the riskiness of the loan. On the lender’s side, there is a 0% to 1% loan origination fee depending upon the credit worthiness of the borrower.

While the trend of micro-financing is pretty small for now, in time the banks will wake up and start to notice. Banks have long enjoyed having captive clients to whom they have extended personal loans, lines of credit and a host of other financial services. They’re not going to be happy to see novice lenders cut into their main business.

Lenders on the prosper.com site are even allowed to set up their own loan portfolios depending upon the amount of risk they are willing to take, with loans ranging from Conservative (estimated return of 7%) to the highly aggressive loan (which nets 10%). All of a sudden individual investors are beginning to look like institutions where they’re able to decide whether they want to be Wellsfargo or Washington Mutual.


One Response to “Prosper.com and who needs a bank?”

  1. By Psychic Advice on Jul 13, 2021 | Reply

    Thanks for the great info. I hope you’ll follow this with some more great content.

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