Small Business Lending: Will MSPs Embrace P2P Loans?

Roughly 50 banks have failed so far in 2011, according to FDIC. The lending and financing markets remain tight. And small business loans are difficult to secure... leaving some MSPs searching for alternative funding options. One potential solution: So-called peer-to-peer loans.

According to recent articles by Reuters and the Wall Street Journal, the connective power of the Internet may give MSPs and small businesses access to peer-to-peer (P2P) loans.

You may be familiar with the P2P concept from sites such as Napster and its less copyright-respecting brethren, which allow individual web users to post online content such as songs and videos for other individuals to download. However, P2P loans allow individual web users to make private loans. Best of all, there are no copyright worries to deal with.

Microfinancing for SMBs

The concept behind P2P loans is basically microfinancing, where multiple individuals provide small loans to other individuals or businesses. Microfinancing has primarily been used in the Third World, where a loan that is tiny by the standards of the developed world can go a long way toward helping a farmer buy livestock or a village dig a well.

But as reported by The Wall Street Journal, microfinancing in this case means lenders can loan SMBs figures ranging from $25 to $1,000, with interest, and pool their resources together to form one large loan. The P2P loan sites, such as Prosper Marketplace and Lending Club, make money through borrower fees. SEC regulations now require these sites to be registered.

In theory, a P2P loan site can assist your monthly cash flow and growth goals -- or perhaps even fund some of your customers' IT purchases or projects. But keep in mind that the Wall Street Journal reports most requests for loans are denied.

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