Small Business Owners Seek Loans From Peers

With bank lending still down in the wake of the financial crisis, small business owners instead are getting money from other entrepreneurs. It's called peer-to-peer lending.

"Most times, the window of opportunity opens fast," said Cory Henry, who recently opened a third Edible Arrangements franchise store with his wife and fellow Army veteran Kimberly. "The loan process normally is six to seven months at the bank. Whereas, with Prosper, it was more like 14 to 21 days."

Prosper and Lending Club are the two leading peer-to-peer websites. They verify the credit of borrowers and then link them with investors. The two sites are expected to finish the year with a combined total of $330 million in new loans, more than doubling last year's business.

They offer lenders an average annual yield approaching 10 percent, according to Peter Renton of, an independent website that follows the peer-to-peer sector.

"Right now it's a perfect storm for peer-to-peer lending," Renton said. "Because banks aren't lending and no one can get a yield on the investor's side."

According to studies by ADP and Macroeconomic Advisers, 53.4 percent of the new jobs in November were with firms with less than 50 employees. Just as small business people are driving job creation, they've come up with a way to finance that growth while traditional credit is scarce.

"I think that's kind of what Americans do," said Chris Larsen, Prosper's CEO and co-founder.

"They kind of take the disaster and they fix it and they make it better. And this technology can play a role in it."

The relatively high yields of Prosper and Lending Club are starting to attract institutional investors, suggesting what started as a niche market may become part of the permanent landscape of how small business people do business.

"It's great for Americans who are trying to live the American Dream," Cory Henry said.