Peer-to-peer lending differs from conventional lending because the investor lends to an unrelated peer without having to go through an intermediary such as a bank or financial institution. The absence of an intermediary helps provide lower interest rates to the borrower and gives the investor the option to capture higher interest rates than what a financial institution has to offer. Peer-to-peer lending utilizes online transactions as the primary method of lending. Just like a bank, the use of the internet helps inform borrowers about the loan such as its interest rates and risk categories. The difference however is that the borrower can access this information in the privacy in his or her own home or office. Peer-to-peer loans provide a financial lifeline for borrowers locked out from traditional lending institutions.
The traits of peer-to-peer lending are matching the right loan application to the profile of the investor or lender based on their investment history. This helps to narrow the options of the peer investor in choosing the right loan to fund based on the investment options. In other words, peer-to-peer loans are the equivalent to matchmaking sites such as eHarmony.com. Most peer-to-peer loans operate in the same manner as a credit card because they are a form of unsecured debt. If the borrower defaults and misses payments, there is not a chance for the repossession of assets. Instead, there would be a rejection for new loans or increases in credit lines. Commercial loans are generally asset-based, or use property such as real estate, housing, and vehicles. These loans are secure but require a down payment of a specified percentage of the purchase price. If the borrower defaults or misses a certain amount of payments, repossession and/or foreclosure of the assets may occur. Finally, peer-to-peer loans provide solid returns to investors because they earn better direct results and they carry a low financial volatility due to the absence of the traditional financial institution.
The two largest peer-to-peer lending companies are Lending Club and Prosper. These companies function by protecting the financial privacy of both the investor and the borrower. Additionally, they commit themselves to transparency by giving requested information to borrowers. Since the implementation of new lending regulations in reaction to the financial crisis of the late 2000’s, financial institutions may reject borrowers with low FICA scores and unacceptable tax returns. As a response, peer-to-peer loans help locked out borrowers with low FICA scores due to situations regarding divorce, illness, foreclosure, self-employment, lack of work experience, nationality status, and/or a combination of the above.
Blackhawk Investments differs from other peer-to-peer loan companies because these loan requests represent investment opportunities secured by real estate, which consumer loans lack. Traditional banks usually charge low interest rates but they have strict credit guidelines; usually resulting in frequent rejections. Hard money loans carry high interest rates and require significant equity from the borrower. Blackhawk Investments prescreens all loan requests from borrowers through its automated matching algorithms, which in return, procures letters of interest from investors. The goals of the company are to build strategic partnerships with other peer-to-peer companies and promote customer empowerment through their online platforms. In conclusion, the main focus of Blackhawk Investments is to help expand the financing options and market knowledge of the borrower. Furthermore, peer investors will learn how to make self-directed investments in commercial notes yielding 6%-12% annualized secured by real estate.