Peer to peer lending is a simple transaction between an individual that wants to lend money and an individual or business that wants to borrow money without the use of a third party facilitator, like a bank or a lending company, to manage the loan. It started in the USA in 2006 with Prosper.
Peer to peer lending is becoming more popular as banks limit lending and consumers find themselves facing difficulty obtaining traditional financing. Banks, trying to fix their balance sheets, have introduced much more stringent requirements for personal loans than what was required in the past and fewer people have the qualifications to obtain these loans. Small business owners have been hurt by the contraction in lending as well. The reduction in traditional lending to small businesses has resulted in a dramatic increase in the number of business owners interested in obtaining peer to peer loans.
Sounds brilliant but the problem has been that the potential borrowers turn to P2P after they have failed to borrow from other sources and this can make the borrowers high risk.
If this issue could be over come and P2P could become mainstream, I think it could become very popular, the lenders get a good return and the borrowers get a fair interest rate and terms. Even one is a winner.
To see how it works in practice take a look at http://www.fundingcircle.com/
Also here is blog http://stevegrice.wordpress.com/2012/01/30/peer-to-peer-business-lending-in-the-uk/ which is very interesting.
It would be great to find out your views and comments.