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The peer-to-peer lending industry (P2P) has moved at warp speed since inception in 2005, when the first peer-to-peer lender, Zopa, launched in the United Kingdom.
There are now more than 20 firms worldwide offering would-be borrowers solid alternatives to more traditional bank lenders and business loans. Some of these peer lenders specialize in school loans and micro lending, but the largest players — LendingClub and Prosper — will provide funding for any purpose.
Unlike traditional lenders, there are no penalties or higher interest rates to a borrower who wants to use funding for what some might consider more risky reasons like consolidation of debt or to pay off medical expenses.
Why has this industry grown at such a rapid rate? Put simply, it offers both borrowers and lenders significant efficiencies over the traditional banking model. For more history about P2P loans and how it works, see this infographic.
Benefits to the borrower revolve around speed of the funding, reasonable interest rates, higher funding rates, and the ease of the application process.
Not all of the benefits apply to borrowers in the peer-to-peer lending model; lenders win by getting returns above market rates and spreading their risk through a variety of transactions.
Peer to peer lending is a model that over the last half decade has proven it offers benefits to both the borrower and the lender.
With the tightening of traditional lending markets and spiraling economy in the last few years, P2P lenders have not just survived but thrived. Unaided by government bail outs, the largest P2P lenders have combined to loan almost half a billion dollars and provided loans to more than 63,000 individuals and business owners since their inception.
If you want to get matched with the best P2P lender for your business, please sign up here for free:
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Small Business Tools
7 min read • Aug 12, 2022