Peer-to-peer lending offers alternative fund source for small business owners

7/14/2011

Peer-to-peer lending offers alternative fund source for small business owners

The U.S. Treasury Department recently awarded six banks a total of $123 million from its long-awaited Small Business Lending Fund. However, there are some smaller companies that are either ineligible for a loan or choose an alternative method gaining funds.

Peer-to-peer lending removes banks from the lending process, instead relying on a network of lenders who help borrowers raise money, according to Reuters.

Small businesses may choose this route because there's the potential of being offered a better rate. However, this doesn't mean peer-to-peer small business lending websites will accept loan requests from anyone who's been turned down by a bank. Popular P2P site Lending Club denied 90 percent of applications due to factors such as poor credit scores.

KGO-TV notes that individual lenders can invest a little as $25 or as much as $30,000. The process involves far less paperwork as well.

"I wrote an essay of why I needed the loan, kind of some background on the business," motorcycle shop owner Nansee Parker told the news source. "The banks tightened their lending practices, [and] we're not going to grow the economy by not lending."