The thing always happens
that you really believe in; and the belief in a thing
makes it happen.
Frank Lloyd Wright, Architect
Microloans from peers are a new
development in the internet world.
Based on the
model for microloans to individuals in underdeveloped
countries, it works like this:
A person
submits a request to a microloan website.
Real people take
a look at it, and different people contribute different
amounts until the total is reached.
The borrower pays
back the website, which in turn repays the lenders.
This is definitely worth
considering for those who, for one reason or another, don't qualify for
traditional banking loans.
The amounts tend to be small,
a few hundred dollars or a few thousand dollars, but it is often enough to
get a small business off the ground.
Repayment terms are similar to
a bank's. Interest is charged, and often reflects the risk inherent in
the loan. People with good credit will get lower interest rates than
those with poor credit.
And penalties for non payment
are just like bank loans: reporting to the credit bureaus, with a
nasty ding in your credit profile.
Before jumping in to get
microloans from peers, here are some tips:
Tell Them a Story.
These are real people you are communicating with. The more realistic
the story, the better your chances of getting funded. No phoney
baloney. Keep it real.
Know What the Terms of
the Loan Are. Each website has different rules, so make sure to
read them carefully. Know what you are getting yourself in for, or
can seriously damage your credit rating.
Know Your Credit Rating.
Get a current credit report with FICO rating and find out where you fall.
That FICO rating is a big determining factor in your interest rate.
Expect to Pay More.
This isn't a bank loan. You are looking here because you can't get a
bank loan. Expect to pay higher interest. Just how much higher the
interest will be is very dependent on your credit rating.
Be Patient.
There are far more Borrowers than Lenders. It can take a while for
the right people to see your request.
Here are the major sites to
check. Each is different, so check them all out:
Lending Club.
You must have a FICO score of at least 640, and debt-to-income ratio of no
more than 30%.
Prosper. A poor credit score
won't stop you from registering here, but a good score will certainly help
you get funded.
Virgin Money.
This site facilitates loans between friends and relatives, so you
bring your own Lenders to the party.
Zopa. Must have at least a 640
FICO score, and be affiliated with a credit union.
There are other rules and regs
with these microloans from peers, so read carefully.
