P2P Lending: A Win-Win Situation

Better seeds, improved lives
“Superior access to capital improves lives.” Credit: Gates Foundation

Peer-to-peer lending is an excellent option for acquiring start-up funding while benefiting everyone involved–from the lender to borrower and even customers and employees of the start-up. Peer-to-peer lending creates a win-win situation without giving up a certain percentage of the company.

Win-win sees life as a cooperative arena, not a competitive one. Win-win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions. Win-win means agreements or solutions are mutually beneficial and satisfying. We both get to eat the pie, and it tastes pretty darn good!

Stephen Covey

Peer-to-peer lending enables a win-win situation by eliminating the middleman: banks. The elimination of banks allows borrowing directly from lenders while reducing the interest rate for the borrower and ensuring a high, consistent return for the lender. Since there are no overhead costs required such as those of brick and mortar banks, peer-to-peer platforms can afford to collect 1% of each loan while providing great interest rates for both sides of the transaction.

The leading peer-to-peer platforms are Prosper and Lending Club. Both are similar in their requirements for lenders and borrowers. Loan amounts range from $1,000 to $35,000 with higher risk and interest for larger loans. However, some states do not allow Prosper and/or Lending Club so make sure to check your state first.  Prosper and Lending Club reject about 90% of borrower applicants while having strict income and networth restrictions for lenders. Borrowers need to have a minimum FICO score between 640 and 660. Depending on the borrower’s credit score, interest rates can range from 6% to 31% with an average of 10%. This rate is lower than credit card rates for borrowers and a lot higher than a savings account of 1% for lenders, making it an attractive option on both end.  Their requirements and high rejection rates ensures a consistent repayment rate of 97% with minimal loan defaults.

With a successful transaction, your business can thrive and improve not only your life but those around you.

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