Peer-to-peer lending is not dead yet
Stories this morning in the New York Times, TechCrunch, and Valleywag are spelling the doom of the peer-to-peer lending business. Battered by high default rates, regulatory blocks, and investors skittish to fund new concepts with their own cash, the model appears to be one for happier times. In this economy, who wants to monkey around with flaky Web 2.0 financial instruments?
But perhaps it's not the model itself that's flawed, it's just the implementation and the timing. One of the peer-to-peer lenders, Lending Club, just this week received regulatory approval to pursue not just peer-to-peer lending but a secondary market in which lenders can package up their loans and sell them to other Lending Club investors. The company applied for the approval six months ago, CEO and founder Renaud Laplanche told me.
Furthermore, unlike other P2P lending sites that serve people who can't get a reasonable loan through normal channels, Lending Club, with its high threshold for admitting borrowers into the system (it denies 86% of applications and has only a 1.7% default rate on loans), instead serves as a more cost-effective lender for people who would normally have no trouble getting loans through traditional channels.
Be the banker.
The opportunity for Lending Club is that even grade-A borrowers can't easily get loans right now. Not because they're risky investments, but because the banks have spasmed shut their coffers. Many are now as closed to making good loans as they were irresponsibly open to taking on sub-prime debt a year ago.
And with the stock market whipsawing, Lending Club is seeing investors signing up for the service that should be more predictable. They're using it as a new part of a diversified portfolio strategy: Stocks, bonds, and now, loan portfolios (the typical lender spreads their money among 50 to 100 loans). The secondary market adds liquidity to the portfolios, as well. I think it could also add speculation and instability, but Laplanche maintains that a secondary market for quality financial products actually improves the value for all concerned without introducing outsize risk.
There are challenges for Lending Club on both the lending and borrowing side. The supply of funds for lending is down since most peoples' investable assets have declined, but there's the diversification strategy in light of the stock market that's helping. And the number of potentially qualified borrowers is impacted by the increase in unemployment and personal bankruptcy; but again, the close-fisted banking system is pulling people to the service. Laplanche says, "The approval rate is going down, but the number of applications is going up."
The tough economy could be a net benefit for Lending Club, and possibly other P2P lenders. It's too early to write off this model.
Rafe Needleman writes about start-ups, new technologies, and Web 2.0 products, as editor of CNET's Webware. E-mail Rafe. 
Check out this article: http://www.google.com/url?sa=t&source=web&ct=res&cd=1&url=http%3A%2F%2Fezinearticles.com%2F%3FForget-the-Banks%2C-Use-Peer-to-Peer-Lending-For-Obtaining-Student-Loans%26id%3D1620203&ei=3_8YScuIEonOsAOc36WKDA&usg=AFQjCNEFfAzQ_6Jlr308cL46gQTzIxIAQw&sig2=Do8rkzRGu1dL8P8VZBKFzw
This article covers the different options that you have using P2P loans.
Like the other posters said, you probably won't be able to afford paying the loan while in school and you will also want something with a longer repayment plan.
Cheers.
http://www.schoolraise.com
If you are planning on working while going to college so you will be able to make monthly payments, then P2P lending could help you out. Though you might need more than 1 loan depending on how much your tuition costs. I'm not sure about lendingclub, but I know on prosper (another P2P lending site), there's a $25,000 limit on loans.
If you will not be able to make monthly payments to pay off your loan while you're in college, then definitely stay away from P2P lending sites. Instead, you should look for a student loan that does not require you to make payments until after you graduate...I remember seeing commercials for such a loan on TV before...I forget the name of the company that was offering it, but I think it started with an A...if that helps..
1. much lower costs than traditional banks -- can therefore charge 1% comission versus typical 10%+ spread that banks have (banks pay 5% on deposits, get 16%+ on credit cards)
2. much simpler than traditional banks that got into major trouble because of the complex derivatives and lost credibility
3. has the same information and processes as banks do (access to credit scores, collections, reporting deliquency) and more (professional and educational affiliations), etc.
So, the real question is WHO has the best p2p model. Lending Club seems in the lead with SEC approval, secondary market and most importantly defaults of less than 2%. Zopa is out and questions on Prosper remain.
Tom
http://prosperlending.blogspot.com
Steve Rabago, ZEO, ZimpleMoney.com
- by janiejohns November 28, 2008 5:06 AM PST
- Good article. I always recommend tapping into your social network, especially family and friends, to get money and resources to start a business.
- Like this Reply to this comment
-
(9 Comments)40billion.com is a site that helps entrepreneurs raise money for their small businesses through friends and family, rather than through traditional financial institutions. It is the first friends-and-family funding network for entrepreneurs. Using the Internet-based service, entrepreneurs connect with their social networks - friends, family, friends of family, colleagues, and others ? to raise capital by requesting loans and contributions, and entrepreneurs can share their fundraising pages on MySpace and Facebook too. 40billion.com?s scalable platform facilitates the funding requests and generates customized loan documents to make it easier for an entrepreneur to manage many investors (lenders and donors), who can provide $50 to $10,000 each.
For more information, visit http://www.40billion.com