Prosper Returns To Upgrade The Peer-to-Peer Lending Space

P2P lending marketplace Prosper began lending again on July 13 with the green light from the Security and Exchange Commission.

Originally launched in February 2006, Prosper was the first auction platform, matching prospective lenders and borrowers by allowing the final rate to be established essentially by what lenders will pay. In October 2008, the SEC halted Prospers operations because federal law prohibits the sale or offer of securities without the company registering with the regulators.

Prosper came back a healthier, more lender-friendly marketplace with key enhancements for borrowers and lenders alike including:

• Lender: A minimum credit score for borrowers from 520 to 640 and capped the loan request to $25,000 for a three year fixed rate loan.
• Lender: Added onto the already existing borrower profile information, which details past loan performance as well as credit files, is a Prosper Rating that ranges from AA- HR and represents a loss rate range. The Prosper Rating will be shown in the listing along with an estimated loss rate and credit score range (20 points, down from 40 points).
• Lender and Borrower: Lowered minimum bid requirement from $50 to $25. This helps lenders to diversify their loan portfolio.
• Lender: Better lending with a “hard bid floor” for each loan listing that sets the minimum interest rate a lender can bid; this helps lenders assess the risk of the loan and price it more appropriately.
• Lender: Now lenders can sell their Prosper Loans in a new secondary market, Foliofn. This gives lenders more liquidity with their Notes if they need access to the funds before the loan is fully paid off.

Currently, Prosper can facilitate P2P lending in 16 states including California, Illinios, and New York, and is working through each state’s regulatory process to allow lending nationwide.

Prosper is the first Internet auction-based lender approved by the SEC. Unlike competitor P2P lender Lending Club, where fixed interest rates are set according to Lending Club’s base rate plus Adjustment for Risk and Volatility, investors at Prosper agree to fund a borrower without knowing what the final interest rate will be. Other major player Loanio imitates Prosper’s auction platform and unsecured rates, but has currently suspended its business pending registration with the SEC.

Despite the 9 month setback, Prosper seems to be on its way back to the top ranking in P2P websites. Prosper has more than 840,000 members and funded an estimated $178 million in personal loans. Their comeback arrives not a second too soon, providing consumers an alternative to big banks and reviving hope that consumers can still put their money to work despite the current dry spell in the credit markets. Looks like alternatives to investing, without the bank or broker middleman, can be, well, prosperous.