Peer-to-Peer Lending Sites Hit Credit Crisis Wall
One of the big Web 2.0 business models of the past few years, Peer-to-Peer lending has taken Micro-finance to a new level.
However, the worldwide credit crisis has not passed over this area of lending. According to the New York Times today, the SEC is approaching these web sites to determine if they should have registered as a seller of securities.
This is not surprising to see considering the debt and credit risk these sites are creating. But I think this will carry over into other Internet businesses as well. Not many cash flow positive Internet businesses that are taking out debt to run or expand their business. Most of those will sell equity to raise cash. However, most startup Internet businesses, especially domaining due to its cheap entry cost, are funded on credit cards. And people are very quickly feeling the pain of those credit cards.
The one thing that these micro-finance sites are doing is providing a solid platform for future lending if banks really get in some serious trouble. While they may take a bit of pain up front here, I do believe in their business plan longer term. I think they need to provide more clarity and information on who you are lending too, but in the end, micro-finance is going back to the roots of lending.
*image source: ning.com
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Well, it’s been exactly a year now since this post and peer lending continues to grow exponentially despite the new SEC regulation that shut down the big sites for several months while they completed their applications. According to Boston research firm Celent, about $282 million in peer-to-peer loans were made in 2006, and by 2010, the firm expects such loans to grow to $5.8 billion.