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August 28, 2007
Not Your Typical Loan Officer
By Josh Krogh
Affiliate Manager
CPA Empire
A new kind of loan officer has hit the market and they are not affiliated with any bank. Rather, a growing number of individuals are lending out anywhere from a few hundred to more than $100,000 through companies like Prosper®, a 15-month-old venture that combines social networking with online auctions in an attempt to create a lucrative new marketplace for loans.
This new breed of lender is taking the place of banks and other traditional lending institutions and providing lending options to thousands of people around the world. While many of these companies focus on lending in developing nations, Prosper is targeted toward the U.S. market. Borrowers are looking for money for many different types of reasons, ranging from consolidating credit-card debt to expanding an existing small business.
“Prosper's marketplace is a blend of eBay-like bidding auctions and social networking, and is conceptually related to the emerging world of microcredit,” says Chaddus Bruce, of Wired.com
Wannabe borrowers give Prosper permission to verify their identity and allow the company to access their financial data as collected by Experian® (one of the major credit-scoring companies and also and advertiser with CPA Empire). Prosper then works to match the borrower’s loan request with lenders. Lenders will offer to provide all or part of the funds to the borrower at interest rates they set. Then the borrower selects from the loan offers, choosing one or more to meet their loan request.
Why are consumers attracted to Prosper? The possibility of lower fixed rates, quickly funded loans, and a potentially easier way for innovative businesses to obtain loans.
"It is the first time this large market has been opened up to the average investor," says CEO Chris Larsen, who sold his previous online lending business, E-Loan®, for $300 million in 2005.
To keep bad loans from poisoning the well, Prosper blocks borrowers who have defaulted on previous loans. Over half the company's engineers work on anti-fraud measures, according to John Witchel one of the company’s co-founders. Prosper also insures lenders against the possibility of money lost due to identity theft.
At the end of the day, as with all new markets, there is a learning curve for early adopters. "They key thing for us is not stepping in and saying what people should do, otherwise it is just what banks are doing at the end of the day," says Chris Larsen, co-founder.
Posted by Tom at August 28, 2007 08:47 AM