Wednesday, June 21, 2006

Not a bad idea if you ask me. Not a great implementation strategy either. More of an eeehh!

At, the founders describe themselves as the online market place for people to people lending. I thought about this idea a while ago but lacked the interest or the real know how to implement it but the site is now up and running. Long story short, many lenders/people can lend to 1 borrower an amount of money not exceeding 25K, all while reviewing the perspective borrowers credit worthiness and group affiliation for an agreed upon interest rate. However I see business slowing down for this company for one specific reason. Savings rates. When potential lenders have the opportunity to make 5%+ guaranteed in a savings or money market accounts, why would they risk their funds to make up to 8% with a person that may or may not pay them back?

Pop Quiz Should you:

A. Lend $300 to Joey Tuffguy, with a C+ credit score, for "business supplies" to make a potential 8% per annum?
B. Place $300 in a big bank of the US savings account and make a sure 4.75 per annum?

In other words savings rates are too good to enter into a lending situation with a stranger that may or may not pan out. I saw one borrower asking $600 to pay his rent, with a poor credit rating, whhoooaaa!

Plans for prosperous improvements:

When this site begins to offer bigger loans, from more informed and risk tolerant lenders, for borrowers/people in bigger payout businesses such as house flippers that need 120 day loans, then the potential for success will increase. Higher interest can be charged and there is a more win/win potential.


Anonymous said...

"I saw one borrower asking $600 to pay his rent, with a poor credit rating"

No you didn't. the minimum one can borrow on prosper is $1000

I'd rather put my money with Joey Toughguy for an expected 16% APY than in a bank for a guaranteed 4.75%

Andrew said...

I think Prosper has a great business plan considering all the sites out there today being run by consumers. Some of the most popular and helpful sites, including Craigslist and Ebay, are prospering in some part because of users input and diligent policing. I read another blog about Prosper from a guy who is taking part in a group of lenders. So far he has had all of his loans payed on time. Might be worth a close look.