Person-To-Person Loan Site Styles Itself As "An EBay For Money"
By VICTORIA LIMThe Tampa Tribune
February 25, 2007
When Phil Bernie of Carrollwood wanted to expand his company, he didn't turn to a bank, or credit union, or another traditional lending institution.
He turned to Prosper.com, an online matchmaker of sorts, which brings together people with money and people who want money. Complete strangers rolled out the welcome mat for Bernie's RV mat business. With contributions of as little as $50 toward his $25,000 loan, Bernie's interest rate is 12.65 percent, versus the 18.25 percent he was offered at his bank.
"I thought it was dynamite," Bernie said. "Banks are conservative. Not everybody in the country is conservative."
Former CEO and co-founder of online lender E-Loan, Chris Larsen is now CEO and co-founder of Prosper.com. Larsen said he was inspired by the marketplace created by Internet auction site eBay.
"We thought, 'We can create an eBay for money.' Any borrower can make a listing, they can make an ad, and any American, for as low as $50, can fulfill that listing," Larsen said.
Here's how it works: As a borrower, you plead your case to Prosper.com's online community. Stories range from dreams of buying a house, paying off student loans, or rebuilding credit and company expansions, to sob stories of jilted brides left at the altar, single moms trying to further their education and military hardships.
Your request includes the amount of your loan and the interest rate you'd like to pay. Every loan is for three years.
Before your loan is finalized, Larsen said borrowers must submit paperwork confirming their identities, their income-to-debt ratios, proof of income and other paperwork traditional lenders seek.
Lenders Encouraged To Spread Risk
As a lender, you can contribute as little as $50 of the total amount and bid against other lenders to make a loan. Prosper.com recommends lenders spread risk and make a lot of smaller loans versus one big one. That way, if a borrower defaults, a lender still has payments coming in from other loans.
When a borrower defaults, it goes on his or her credit record.
Paul Campea of Inverness is currently loaning money to 173 borrowers. He tends to lend to single mothers, higher education seekers and members of the military, he said. His average return on his Propser.com account: 17 percent.
"You get the double whammy, not only financial payback, but emotional payback, community payback, a sense of self-satisfaction because you helped somebody else out," Campea said.
Interest Is Subject To State Limits
Just like traditional lenders, Prosper.com is licensed with the Florida Department of Financial Services as a small loan company that can charge up to a 30 percent annual percentage rate, said Andy Grosmaire, administrator for the department's Office of Financial Regulation.
Anyone can lend money to anyone; you don't need a company to set up a person-to-person loan. Florida law doesn't limit how much money you can lend. However, it does limit the interest you can charge to 18 percent, whether it's conducted through a contract or an informal handshake.
Prosper.com is considered a risky investment. A lender could be left empty-handed if a borrower defaults. But for borrowers turned down by banks and turned off by traditional lenders' high interest rates, the generosity of strangers may be an option.
If you have a consumer questions, call the help line between 11 a.m. and 1 p.m. weekdays at 1-800-338-0808.