P2P lenders see silver lining in credit crunch cloud

The credit crunch may be bad news for traditional banks, but the new breed of peer-to-peer lending operators are viewing the current liquidity crisis as a clear opportunity to take on more business. 

With traditional lenders tightening their loan criteria and dispensing with special introductory credit card rate offers and home equity loan options, social lending sites such as Prosper and Lending Club are promoting themselves as a viable alternative source of financing. 

Lending Club recently secured $10 million in funding and has opened a new public Web site, extending beyond its original platform as an affinity matcher for Facebook users.  

Renaud Laplanche, founder and CEO of Lending Club expects the market turmoil to be beneficial to business. "During this credit crunch, people-to-people lending provides a valuable alternative, and keeps money flowing when people need it the most," he says. 

Similar sentiments can be heard at rival network Prosper. Chris Larsen, co-founder and CEO describes the current crisis as “broadly constructive for Prosper lenders and prime and near prime borrowers”.

Recent stats from Prosper also show a shift in emphasis, as individual lenders steer their bids toward borrowers in the higher credit categories and away from the higher rates offered by subprime borrowers. Evidence of this flight to safety is seen in Prosper's mix of funded borrowers. For example, the subprime category accounted for only 9% of loans funded in August 2007, a marked decrease from August 2006 and the 2007 year-to-date average of 25% and 14%, respectively.