Have You Heard of Peer-to-Peer Lending?
Have you tried getting a small business loan from a bank for your freelancing career only to be turned down? You are not alone.
Some freelancers who need access to cash have turned to something called peer-to-peer lending. It’s an interesting model that both Prosper and Lending Club, the two leading peer-to-peer websites, are using. Here’s how it works:
Peer-to-peer lending, or social lending, it is a way for investors who have money, to lend directly to borrowers looking to borrow money. It is a win-win for all parties. The investor gets a better return on their money than a traditional savings account or CD and the borrower gets a lower interest rate than they would likely pay for a credit card advance or bank loan. —Peter Renton from SocialLending.net
Whether you are looking to consolidate debt or set yourself up with a home office for your new freelancing career, peer-to-peer lending cuts down the wait time and administrative fees from banks.
Of the almost 60,000 loans that have been originated through Lending Club and Prosper in the last five years we know a good portion of them have gone to fund a small business. The official numbers are around 3,500 loans or 6% of that total.
These are 3,500 businesses (there are likely more than that because not everyone states their exact loan purpose) that might otherwise not have been able to get a loan. With the excruciating tight lending standards of the last couple of years most small businesses have been left out in the cold. And with falling home prices, people have not been able to fall back on home equity lines of credit like they did in the past. —Peter Renton
Why P2P Lending is a Good Idea
- You don’t have to finance your freelance career with credit cards, which have a much higher interest rate than P2P lending. Instead, you can get a short-term loan for a much lower rate. The shorter the term, the lower the rate.
- You can get the money you need in a fraction of the time. Some people wait up to seven months to be denied a loan from a bank. Think what they could have done with that lost time if they had gotten a P2P loan!
- Your credit score is directly related to your rate and the amount you can borrow. But you don’t want to borrow more than you need. And how Prosper and Lending Club set their rates is completely transparent on their websites. In fact, Lending Club has a page titled Interest Rates and How We Set Them. They make it easy for you to understand their process.
- Interest rates are low, thanks to the stalling economy. It’s a great time to borrow money with P2P lending. Note: not all states allow P2P lending, so check online before you get your hopes up.
If you are interested in learning more about P2P lending, check out this free e-book written by Peter Renton. Understanding Peer to Peer Lending will walk you though what you need to know. Borrowing money can be scary and daunting—but P2P lending is becoming more and more prevalent as banks aren’t able to help budding entrepreneurs and freelancers.
Have you taken out a loan through a social lending site? What did you think of the process? We’d love to know, so please leave a comment below.