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Peer Lending Industry Crippled

Signature loans obtained from Social Lending Companies, also known as Peer-to-Peer Lending (P2P) Companies have been curtailed. These P2P lenders allow people who need a signature loan to obtain one. However, those seeking social signature loans may have problems finding websites to request their loans from. Recently a decision made by the Securities and Exchange Commission (SEC) has forced many of these social lending signature loan companies to temporarily stop offering new loans. The SEC has determined that the social lending companies will now need to be under greater regulations.

This action by the SEC has forced numerous big players in the social lending industry to temporarily or permanently stop offering new loans to individuals and small businesses. The timing of this action could not be worse for most potential borrowers. Finding new signature loans, or any other debt financing options has been a very difficult, and nearly impossible, quest for many potential borrowers in 2008. Traditional lenders have dramatically reigned in the number of loans that are willing to make. This has made it significantly more difficult for many people to be able to secure a loan. Today, lenders are sitting on enormous amounts of money. They would like to lend, but because of the increased scrutiny they are placing on loan applications, combined with the difficult financial situation many people are in today, lenders they are not finding many people who meet their strict requirements to lend money to. Many potential borrowers are being turned down for loans. These traditional lenders are only lending money to those people who have excellent credit.

Now with lenders not offering money to most people, more and more people are discovering the great opportunity that they have to secure loans through these social lending companies. P2P lending has been very popular in the UK for quite some time. It has only caught on in the United States in the recent past.

Just as the popularity of peer-to-peer lending has started to catch on, the SEC has crippled this industry. Hopefully this will only be a temporary setback for this fledgling industry. Among those companies that have been hurt by this action, prosper.com, which happens to be the industry’s largest player in the USA has temporarily stopped offering new loans. Several other companies have been forced to do the same thing as they coordinate and submit the regulations that are being requested by the SEC.

Lending Club is one of the very few social lending companies in the United States that continue to offer personal loans to individuals and small businesses. We have discussed social loans. The reason that Lending Club has been able to continue to offer new loans is because they had the foresight to anticipate this action by the SEC. Lending Club elected to file its paperwork with the SEC several months ago in order to try to meet the SEC’s regulations and requirements. Because of this, they have not seen a slow down in their business. In fact the opposite has been true. Because the other P2P lenders have ceased offering new personal loans for the time being, more and more borrowers have discovered this company and are able to submit their new loan applications.

This timing by the SEC could not be worse for most people. December and January are typically the seasons when people are looking for loans most often. Due to the financial crisis in the United States and around the world, people have less money and are spending less during this holiday season. However, they are still spending.And they are probably spending more than they can afford to. As a result, many people will need to seek out loans to help them get through these difficult financial times. In the past, they have sought out traditional lenders, including banks and credit card companies. When that has failed, they have tried getting signature loans. These are loans that are secured by nothing more than the borrower’s signature — there is no collateral with these types of loans.

Peer-to-peer loans have been a wonderful new alternative for borrowers. These loans have allowed people to secure loans from individuals or small businesses. These loans are usually for amounts as small as $1000. Borrowers may be able to get loans for $5,000, $10,000, or even as much as $25,000 or more. The size of the loan and the interest rate that the borrower is able to obtain are directly tied to their credit history. Those people with good credit are able to borrow more money at lower interest rates. Conversely, those people who have a bad credit history may not be able to borrow as much, and their loans would be at substantially higher interest rates. Even if the interest rates are high, having the ability to secure a loan in the current financial climate may be a welcome opportunity for those in need — especially those people seeking debt consolidation.

Normally, at peer-to-peer lending websites, the people or small businesses who are acting as the lenders will not loan the borrowers the entire amount of the loan that is requested. Typically, these “lenders” will only agree to fund a small portion of the requested loan — possibly as little as $50. The loan amount therefore gets funded by multiple of these lenders each agreeing to lend a small percentage of the overage loan. So a borrower may wind up having 10, 20, or more people loaning them money. As with traditional lenders, these people are spreading their risk amongst many borrowers. If, as may be the case, some of the borrowers may be unable to make all of their loans payments in a timely manner. By spreading out the money that they are making available for loans to multiple borrowers, these lenders are spreading out their risk.

Peer-to-Peer social lending signature loan companies are a great way for people to have the opportunity to apply for and hopefully secure a loan if they need it — especially those people who are in dire need, those seeking debt consolidation, and have been turned down for traditional loans and signature loans. Hopefully the industry will survive its recent issues.

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