New P2P lending sites help to manage risk

Peer to Peer Lending & Loan Sites

History of P2P Lending Interest Rates
Peer-to-peer, or P2P, lending took off in the mid 2000s as a result of growing frustration with banks’ loan process, and as a way to provide small businesses and entrepreneurs with expanded access to capital. Now, as investors with excess liquidity grow increasingly frustrated with historically low interest rates, P2P lending has become an option to provide higher ROI with new means of managing potential risk.

New Peer to Peer Lending Model
Unlike government-backed loans, there is no insurance for P2P loans. As a result, a new P2P lending model has emerged in order to offer an alternative to traditional investing while letting investors select the type of risk-reward ratio they are comfortable with.

One example of this new trend is Funding Circle, the largest business-oriented P2P lending site, and their recently unveiled credit assessment process. The new process divides credit-worthy businesses that are looking to receive P2P funding into different risk banks and assigns them a letter grade indicating the potential risk.

With this method, lenders on the site are able to specify the amount they are willing to invest as well as the rate of interest they expect in return.

“We’re trying to create a marketplace that’s an exchange,” James Meekings, co-founder Funding Circle told Forbes. “On one side you have different lenders with different appetites for risk and returns they want to generate. This allows us to access a wider credit spectrum and do things in different ways.”

Lenders and investors can implement and manage custom strategies for credit risk assessment with a decision engine that allows robust testing to simulate policy changes before full implementation, in both a time and cost efficient manner.

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