P2P Lending: A New Source Of Consumer And Small Business Credit?

The Internet is famous for transforming unique new businesses into giant behemoths, seemingly overnight. Names like Amazon and Facebook are just two examples. While the recent Internet phenomenon of Peer-to-Peer (P2P) lending, now starting to accelerate in the U.S., may not experience nearly as much success, it certainly bears watching as a potential new source of consumer and small business credit.  

Briefly, in P2P lending, a website is established to connect potential borrowers seeking consumer or small business loans to a myriad of largely unsophisticated lenders looking for investment opportunities. Typical borrowers desire loans of up to $35,000 at interest rates potentially lower than what banks, or finance and credit card companies might otherwise offer them. Lenders in turn seek returns above those available from deposit-taking institutions or from current bond yields.