Dr Jeff Cornwall

There are a couple of web sites out there that are marketing to entrepreneurs who need money. They are creating what are known as peer lending networks. It is an attempt to hook up those who need money with those who have money.
The basic concept behind the business model is nothing new. They found what seems to be an inefficient market and tried to link it together with a better process. The notion is that there are markets out there where there is supply and demand, but not a good way to connect the two sides. A good example of this business model is a job placement agency. There are workers seeking jobs and there are companies looking to hire. But, for some reason they have a hard time connecting. The business model of an employment agency is to bring the two sides to the table so they can connect on a transaction — in this example, hiring a needed employee who needs the job. For this service, the employment agency gets a fee.
Prosper.com in the US and Zopa.com in the UK both work on this type of business model, but in this case it is to connect those who need money (often, but not always, start-up entrepreneurs) with those who have some money. The sources of money are really not the lenders in this business model. A company like Prosper.com actually makes the loan, and then turns around and sells it to an individual or a group of individuals who are brought together at their site. The borrower tells how much they need (prosper.com has a $25K max), why they need it, and what the maximum interest is they are willing to pay. It then enters a bidding process like other web sites do for hotels, airline tickets, etc., etc. Sometimes you get a hit, but if often takes several tries. From inc.com:

If a loan isn’t fully funded within the auction time frame, the borrower is free to try again. Townshend, who had an A credit rating despite $15,000 in credit card debt, struck out twice before landing a loan. Initially she offered an attractive interest rate, 12.5 percent, but asked for too much money: $25,000. On her second try, she requested $9,900, but at a less appealing rate of 11 percent. Finally, she struck the right balance, asking for $9,500 at 13 percent interest. She also made her loan description more appealing by arranging key ideas into bullet points and providing a detailed breakdown of how she planned to use the money. In three days, she received 77 bids from an array of lenders, including an engineer and a Web entrepreneur, and the loan was fully funded.

A common problem that entrepreneurs suffer from is the “If I only had the money” myth. They are sure that if they just get some money, everything will be OK. Sometimes that don’t exactly know if they really need it, or how much they need. Sometimes they really aren’t sure what they need it for. Often they have no clue how they will pay it back. But, if they just got a loan or an investment, all their problems would be solved. As the example from inc.com shows, this is no magic bullet. You still have to be realistic and have a good proposal to get money. And even with the help of sites like these, it still takes time.
The truth is that most deals are just not ready for financing, and many never will be. But, when they are, or should I say if they ever are, there is plenty of money out there these days. All that sites like these can offer is the possibility of a more efficient way to find that money.
(Thanks to Sigrid Catanzaro for passing this post idea along).