Prosper and LendingClub are two of the largest peer to peer (P2P) lending platforms on the web today. Peer to peer lending is a platform that connects individuals and facilitates borrowing and lending without using a bank. These platforms have only been around for a few years now but have become a trendy way of attaining funding due to low-interest rates.
The basics of how this works:
There is obviously a lot more to this process, but you get the idea. Below are some features that apply to both Prosper as well as LendingClub:
Pros and cons
The application process for both companies is straightforward.
Both companies offer loans to small businesses, but the process is slightly different from this for individuals.
Prosper does not offer loans that are specifically designed for businesses. They are just personal loans like any others, so nothing changes in that process.
LendingClub claims to offer loans up to $300,000 for small businesses. Any small business loan requires a personal guarantee, which means that the individual must commit to the loan if the business cannot repay it. Also, any loan over $100,000 requires some form of collateral.
LendingClub requires small businesses to have:
If you have an established business in need of funding, LendingClub may be an excellent option for you to consider. Their rates are often lower than that of many banks, and you get your funding very quickly.
However, if you do not have an established business or are in a startup phase, you would have to apply to Prosper instead of LendingClub. Prosper only offers personal loans, which would give you the funds as an individual.
Wall Street is now investing heavily in LendingClub and Prosper, which certainly validates individual investors’ concept. Getting returns of 5-10% is fairly normal on these platforms. Those interest rates are better than what most investors can get with bonds or index funds.
When accepting an application, both platforms take into account the following:
Both platforms allow investors to contribute as little as $25 per loan while also allowing lenders to fund a loan if they so choose fully.
The consensus is that it is smarter to hold many small investments across many loans rather than any sizable ones. This allows for ultimate diversification, which is key if you want to lower your risk of losing money on P2P investing.
For example, let’s say you hold 10 loans and contribute $1,000 to each. If one person defaults on their loan, you could easily lose any profits you may have made on the other 9.
However, if you hold 400 loans and contribute $25 to each, it is much less likely that a few defaulted loans will significantly affect your returns.
Investing in either of these two platforms can be quite lucrative. It can also be time-consuming at tax-time, so be sure to document properly and route the cash flows to the appropriate places.
Both platforms are an excellent way for borrowers to access funds that they couldn’t otherwise find at lower interest rates, as well as an excellent way for lenders to get nice returns on their investments. Both platforms are very similar worldwide, so it isn’t easy to pick one over the other.
If you are a small business owner, you should apply to LendingClub.
If you are a startup, you should apply to Prosper.
If you are an individual, you should probably apply to both platforms and go with whichever one provides you with a better rate!