OK. Remember earlier this week when I posted a story about alternative lending? You remember. It was the upbeat story about peer-to-peer (p2p) lending -- and how this credit crisis is good for business (link here). That story was written by Economix, a blog at the New York Times. The blog pointed out that more traditional-looking borrowers were turning to p2p for funding needs during the credit crisis. Sounded like good news to me. Well, not so fast.
On Wednesday, Prosper.com, a leading p2p site, said that it would no longer allow lenders to make new loans on its site. What's more, it won't allow any new loans until the Securities and Exchange Commission reviews its regulatory filings. Ouch. This isn't good news for the unprofitable lending outfit.
From the New York Times, which has a story out that explains the situation nicely: Lending Alternative Hits Hurdle (link here)
"Monthly loan volumes at the company have been declining since the credit crisis worsened this spring. Prosper, which is unprofitable after raising $40 million in venture capital, now faces the damaging possibility that lenders may take their money off the site instead of waiting for the S.E.C. to allow lending to resume. That could take several months."
As I said before, ouch. A lengthy review process could kill Prosper.com. Loan volumes had already been sinking, according to the article. This isn't what Prosper needs right now.
"Other large lenders on Prosper have simply stopped lending altogether. Half of the 20 largest lenders on the site have not made a new investment since August, according to the tracking site Lendingstats.com. A majority of the others have markedly decreased their lending. That might account for the declining month-to-month activity on the site during a time when Prosper needs to show that it has legs."