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Peer-to-Peer Lending Gets a Second Look from Congress

Monday, May 18, 2015  
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Peer-to-Peer Lending Gets a Second Look from Congress


The House Small Business Committee held a hearing to examine how newer funding models, like P2P, can aid American small businesses. P2P is an alternative lending approach that allows small businesses to solicit funding from a pool of interested investors using the Internet. Lenders are matched with borrowers at an interest rate set by the lender in order to meet borrowers’ needs.

P2P is often attractive for lenders and borrowers alike. Lenders may see returns on investment in the upper single digits or lower teens, while borrowers have greater access to capital with lower interest rates. According to Zachary Green from Cincinnati, Ohio and CEO of Foxfire, his small business would not have been able to get a loan for months if it went through a traditional financial institution.


Unfortunately, the current environment may be limiting entrepreneurs’ potential, which was a reoccurring theme highlighted by all four witnesses. Few P2P platforms have taken the costly steps of registering with the Securities and Exchange Commission, and large institutional investors have become more prominent in P2P lending – this means that the P2P market could be dominated by the same institutions it was meant to circumvent.


More importantly, the benefits of P2P lending must outweigh the costs for women. One recommendation from Peter Renton, CEO of Lend Academy, is for banks to have “turndown” requirements – if a bank turns down a business for credit, then that bank has the responsibility to send that business somewhere else. This is a requirement for banks in the United Kingdom, known as a “mandatory referral scheme,” that has provided clearer pathways for small businesses to pursue capital.


Women entrepreneurs are more limited in their access to capital, so they need to know what their options are. One way is to become more familiar with lending options, like P2P, in order to diversify capital access opportunities. Exploring capital access opportunities and advocating for those that benefit women are vital steps in ensuring the success of women entrepreneurs.



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