Posts Tagged ‘person-to-person lending’

Green Money: Person-to-Person Lending with Prosper

Friday, September 5th, 2008

One common concern among entrepreneurs is raising money they need to advance their company from startup to small business and beyond.  Small amounts of money can sometimes make a big difference for businesses early in their development, but money can be hard to find in today’s credit crunch.  Even quite credit-worthy businesses are finding small business loans hard to come by, or that loans are offered at much higher interest rates than expected.  Many have turned to credit cards to finance their ventures, and paid the price in the long run.  There are other ways to get access to money though, including person-to-person lending. 


In person-to-person lending, also called peer-to-peer lending, money is loaned by individuals, unlike bank loans.  Prosper is the largest person-to-person lending marketplace in the US, and has helped to mediate over $170 million in loans so far.  Borrowers make a loan listing for any use, and lenders bid for loans, driving down the rate.  Bids with the lowest rates are combined into one loan.  The purpose of loans can include using them for small businesses, although all loans are created as personal loans.  The size of loans ranges up to $25,000, providing an alternative to small business loans or credit cards.  Since Prosper is not a bank, they have actually seen their business increase even as traditional lending from banks dries up.


Prosper does not specifically target green entrepreneurs, but green businesses looking for small loans may fare well in this system.  Lenders in the Prosper system usually want to know how the money will be spent by borrowers, and are attracted to lend to borrowers like green entrepreneurs, helping to lower interest rates and attract money for these loans.  Lenders in Prosper can look at more than just a credit score to make their decisions.  A survey of lenders in Prosper found that 93% of lenders are interested in lending for green projects, and that 25% of lenders have bid on these projects.  Most banks on the other hand do not consider whether a business is green or not when considering a loan. 


I recently talked with Mike Arquin, founder of The KidWind Project, about borrowing through Prosper to help move his business forward.  KidWind is producing and selling educational materials like wind turbine kits for students and teachers, as well as providing training and curriculum materials about wind and other forms of renewable energy.  When they needed money for the development of new products, making injection molds, Mike found after exploring bank loans that the rates and terms with Prosper were very attractive.  “It was seven days and we got the money,” Mike said when I spoke with him.  Now, five years into the company, they are tripling in size each year and have ten people working for KidWind.  Person-to-person lending may not work for everyone, but it’s good to have another option available when you need money to grow your green business.