P2P Lending Caught in Credit Crunch, Prosper.com Pauses

Peer to peer lending (P2P lending) has been an alternative source of money during the credit crunch. Businesses and consumers who couldn't get a loan at the bank could always try P2P lending, and some skipped the banks altogether in hopes of better loan terms.

Unfortunately, P2P lending is suffering. Loans have decreased as lenders of all types have become more tight-fisted, and good credit is more important than ever. More loans are going to borrowers with good credit - either because more of them need loans or because lenders are more picky these days.

Prosper.com, one of the pioneers of P2P lending, is also slowing things down as they temporarily halt all new loans. Prosper.com is working with the SEC and evaluating new secondary market programs.

While P2P lending has been fantastic for borrowers, lenders are starting to grumble. Loans made at sites like Prosper.com are unsecured loans, meaning there's no collateral to protect lenders. Borrowers will damage their credit if they default, but some default anyway.

Further reading:

• How P2P Lending Works
• NY Times: P2P Lending Hits Hurdle
• Prosper Filing Registration Statement; Enters Quiet Period