Peer-to-peer lending up because of 'perfect storm'

12/21/2011

Two of the top peer-to-peer (P2P) lending companies - Prosper and U.S. Lending Club - are expected to finish 2011 with a combined $330 million in new loans, according to Fox News.

And while small business lending among entrepreneurs represents a perceived risk compared to taking out loans from major investors, The Huffington Post notes that it's "vastly overstated."

P2P lenders do research to understand lending behavior, looking at both credit score and likelihood of a future default before providing funds. Furthermore, because many larger financial institutions have shown hesitation to lend and "no one can get a yield on the investor's side," the current landscape represents a "perfect storm" for P2P lending, Peter Renton of SocialLending.net told FoxNews.

Institutional investors are slowly becoming interested in the P2P niche, due primarily to the fact that Propser and Lending Club both doubled their yields last year. It may lead to this type of small business lending becoming a more "permanent" part of the loan landscape.

Lending is expected to pick up even more in January, CMO of Lending Club Scott Sanborn tells The Huffington Post, pointing to the fact that more loans are taken out around this time to settle credit card debt.