Need a Little Money?

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If you need a little cash to get your business off the ground, maybe you should tap Prosper.com. The start-up, "offering a mixed brew of eBay, Friendster, and the local bank," according to a New York Times article today, aims to hook up people looking for loans with lenders who will show them the money.

According to the article, a prospective borrower registers with Prosper.com, undergoes a credit check, and, if he or she passes, is permitted to submit a request for a loan (up to $25,000) along with an interest rate he or she is willing to pay. The borrower also includes a description of him or herself as well as why the money is needed. Lenders (individuals in this case, not banks) deposit their money with Prosper.com and are offered the opportunity to review individual loans or have Prosper.com review loan requests based on a criteria the lender defines. The eBay part of this is the bidding process, where lenders bid to issue the loan, using interest rates as their competitive advantage. At the end of the process, which cannot last more than two weeks, the bids with the lowest rates are put together to come up with one low-interest rate loan for the borrower.

For entrepreneurs looking to raise small amounts of capital, this seems to be a very attractive alternative to the ever-risky family and friends loan or difficult-to-secure bank loan. The terms are also very friendly: no collateral needed, no prepayment penalty, and a fixed rate over three years. It seems to be a very entrepreneurial solution to every start-up's need for cash. Would you consider using something like this to raise capital?