The loan is described in more detail in an SEC Form 8-K filing made by Prosper today. The note accrues interest at a rate of 15% per year, and the full $1,000,000 is due in two years on Nov 11, 2010. If Prosper takes additional financing of $5 million or more before the loan is repaid, the loan amount will be converted to preferred shares at the financing price. If not, the loan will convert to preferred shares at the Series C financing (Jun 2007) price.

Yet more financing will be needed to keep Prosper afloat until profitability. After shutting down in the fall of 2008 for SEC registration, then coming back in July of 2009, Prosper has had a rough year. Since reopening in July, loan volume has grown to over $2 million in October, but Prosper continues fighting an uphill battle against Lending Club, who saw over $6 million in loans funded during the same month.

Related posts:

1. Prosper secures another $20M in financing
2. Lending Club Reveals $4.1 M in New Funding
3. Prosper Files Sixth S-1 Amendment With SEC, Corrects CEO’s Name

Although the companies are neck-and-neck in the race for regulators’ favor, Lending Club continues to dominate the P2P lending race, with almost 5 times Prosper’s loan volume in August 2009 at $4.3 million in loans issued vs. Prosper’s $905,000 in loans issued. Prosper has only been back in operation for a month since reopening with clearance from the SEC, but at the midpoint of September, loan volumes continue to look 5:1 in favor of Lending Club.

At 54% of the population, both Prosper and Lending Club still have a lot of work to do with state securities regulators; so far it is clear that the low-hanging fruit has been harvested. But Texas (8% of the population), Pennsylvania (4.1%), and Ohio (3.8%) are the next-biggest states to conquer, and just adding those three states would increase the addressable market for either company by nearly 30%.

Related posts:

1. Prosper Adding States at a Good Clip
2. Lending Club Adds Self-Directed IRAs
3. Lending Club vs. Prosper, One Week In

Well, apparently, yes, the borrower really is an adult entertainment professional (later shortened to “porn star” in a followup post), and she really was requesting a second loan from Prosper. Her first loan for a candy vending business back in April 2008, can be found here.

So Prosper, newly relaunched under SEC oversight, and eager for a followup to their Twitter contest, jumped at the opportunity. We hooked a porn star! the all-porn star post seemed to shout. Authored under the pseudonym “Prosper Pink” (complete with Twitter account and Facebook page), Prosper tackled the feminine side of P2P lending, strutting across the wide line that separates financial services from pornography, and wondering aloud why they couldn’t get a little “financially sassy”.

Well, it turns out that attitude and sass can only get you so far in the world of social lending. Even though Prosper has already been compared to financial porn, and even though Prosper’s minimum bid of $25 gives you thirty six hot months of interest from Nina Jaymes (the same as a mere month of access to her web site), the 14-day listing only got to 52% funded. Not surprisingly, the cop and the desk worker both got fully funded within days.

So what’s the moral of the story? Just because you have double D’s doesn’t mean Prosper won’t give you an E rating. If your credit score is between 660 and 680, you have to offer more to lenders than a 9% estimated return (after 14% estimated loss and 1% fees). And if you’re hoping to attract serious investors to your peer-to-peer lending site, focus on borrowers with real assets, not big assets.

Photo credit: NinaJaymes.com

Related posts:

1. Prosper Hosts Twitter Gimmick To Draw New Customers
2. Prosper Relaunches with SEC Approval, Secondary Market
3. Loanio Files Amendment to S-1 with SEC; Cedes Code for Cash

Here are five reasons a personal loan from a peer-to-peer lending company are better than a credit card loan…

1. P2P loans have a fixed interest rate.

One of the big changes that goes into effect today is that credit card companies now have to give at least 45 days notice before changing interest rates or fees on your credit card. That’s a good improvement over the previous 15-day warning, but why bother with variable-rate loans in the first place?

Loans from social lending companies (Prosper, Lending Club, Pertuity Direct) are fixed-rate loans. You got your loan for 12.50%? Congratulations. You’ll never need to remember another number again. No need to look up prime or LIBOR, and no need to check your mailbox for a notice of rate change, because your P2P loan’s rate is fixed until you pay it off.

2. P2P loans have a predictable, fixed payment schedule.

Another new reform taking effect today is that credit card companies must bill at least 21 days in advance of payment. Whether this law passed or not, chances are your credit card bill arrives at roughly the same time of month. But what does vary is the payment amount. Unless you monitor your spending like a hawk (using Mint, Wesabe, or Geezeo), your monthly bill is probably a surprise, and never the same from month to month.

With a loan from a P2P lender, your monthly payment is fixed. It’s due on the same day every month, and the amount due never changes. Unless you miss a payment or incur a fee (which P2P lenders still charge if you’re late), your payment never goes up. This makes budgeting your debt much easier, and improves the chances of paying off your debt once and for all.

3. P2P loans are fully amortized

I wish “amortized” weren’t such a scary-looking word. It just means “evenly divided over a period of time”. If you get a 3-year loan from Lending Club, payments are fully divided (or amortized) over three years. That means you pay down your loan evenly, with no surprise payments in-between, and at the end of three years, you’re done! Your debt is paid in full.

Credit cards, on the other hand, take your balance, evenly divide (or amortize) it over 40 years (yes, I said 40 years!), and ask you for that amount as your minimum monthly payment. That means that if you have a balance of $5,000 on your 15% interest Visa card, never charge anything on that card again, and only make the minimum payment of $62.66 each month, you won’t pay it off for 40 years. And you’ll pay $25,077 in interest alone!

4. You’ll never miss a payment

Not that they’re trying to make you miss a payment, but credit card companies don’t make it that easy to pay your balance online each month. For my Chase Visa, I can either pay the minimum payment or the full balance, but they don’t set that up as a default option. And I only get my bill in the mail – don’t they know that I manage my life with my inbox?

From a P2P lender, your monthly payments are fully automated, and you get an email in advance so you can make sure your account has enough cash. Welcome to the future.

5. You’re paying actual people, not a faceless corporation

If the lower rates, fixed interest rate, regular montly payment, or automated payments of a P2P loan didn’t do it for you, then do it for your neighbor. Sure, banks use your neighbor’s cash to make you a loan, but on the 15% interest you’re paying, your neighbor might get 2%. Through a P2P lender, you’ll have a lower interest rate (like 12%), and your neighbor will recover 10% of that.

A lot of P2P lending companies like to claim that they are “cutting out the middleman” (and let’s be honest, what business doesn’t like to say that?), but in reality, they’re just playing a more efficient middleman. Just like Netflix destroyed Blockbuster’s business by not opening brick-and-mortar video shops, P2P lenders are undercutting banks’ rates through slimmer operations and better technology.

So should you toss your credit cards?

No, for goodness sake, don’t get rid of your credit cards. You’ll still need them to buy things – you can’t step up to the checkout at the Piggly Wiggly and ask if they take Prosper. P2P lending isn’t there yet, but you still need to buy things, and cash is so 20th century. Take advantage of the credit card companies’ largesse in fronting you money on your purchases, and use the time before your bill is due to get a loan from your neighbors through a P2P lender.

You also don’t want to close your credit card accounts because doing so can lower your credit score. Closing an account lowers your available credit balance, which is one of the key metrics that credit companies use to calculate your score.

So keep your credit cards, just use them more wisely. If you can’t pay your bill in full each month, go over to Prosper, Lending Club, or Pertuity Direct, get yourself a fixed-rate, fully-amortizing loan, and use that to pay off your credit card bill. And once you’ve done that, pay off your loan, go on a credit card diet, and live happily ever after free of debt.

Related posts:

1. Lending Club Raises Rates, Prosper Pushes Auction Model
2. Lending Club Posts Strong 1H 2009, Loans Growing 7% Per Month
3. Lending Club Issues $50 Million in Loans

Prosper’s reach now encompasses about 45% of the US population. For comparison, Lending Club, which reopened ten months ago, currently allows lenders from 26 states, or 52% of the population. Prosper and Lending Club more or less mirror each other in states available, with the important exceptions of Florida (6%) and Virginia (2.5%). Population figures are based on 2008 estimates by the U.S. Census.

What is the reason for these state-by-state registrations? Although both P2P lending companies have received approval at the federal level from the SEC, they must also register with state regulators in each state for clearance to sell securities. These are the so-called Blue Sky Laws, which give states the power to regulate securities sold in their jurisdiction. Conceived in the early 20th century, these laws focused on preventing frauds and schemers from peddling anything under the “blue sky”. In the current environment, however, they seem to duplicate the role of the SEC, and are more of a hassle than a benefit to investors.

Although Prosper is making progress with state regulators post-SEC approval, there are plenty of states also claiming their take for Prosper’s $1M settlement with the NASAA last December. To date, Alabama ($5,073), Connecticut ($12,602), Maine ($1,517), Michigan ($20,461), Missouri ($9,228), Montana ($2,214), Washington ($36,025), and Oregon ($15,000) have all collected on their portion of the settlement, bringing Prosper’s bill to a total of $102,117, way short of the $1,000,000 settlement amount. Aside from Alabama and Michigan, all of the other states have authorized Prosper to operate post-SEC approval.

Graphic from The Prosper Blog.

Update: Added Maine and corrected settlement amount on Alabama. Many thanks to Investar for the corrections.

Related posts:

1. Prosper Adds Florida Lenders, Lending Club Adds Missouri
2. Prosper Settles with State SECs for $1 Million
3. Prosper Won’t Stop ’til They Get Enough SEC Filings

Now P2P lending service Prosper, fresh off their site relaunch in mid-July, is hosting a Twitter contest to grab more followers and, ostensibly, more attention (worked on me, anyway). Prosper is giving away $500 total, $25 to 20 different Twitter users who friend @prosperloans and tweet the following message:

$500 for 500 followers! Follow @prosperloans and RT to enter to win 1 of 20 $25 GCs http://bit.ly/GBUkR #prosper500

The contest runs from Monday, August 3rd to Friday, August 7th at midnight. You can check Prosper’s progress on the #prosper500 hashtag. Since the contest kicked off 17 hours ago, it has generated 15 tweets. Which on a per-tweet basis is costing Prosper about $6.67  (assuming we’re one day into the contest, or $100, divided by 15 tweets).

Do these contests work? And what are they worth? Prosper isn’t just selling shoes, or trying to attract blog readers. They’re making loans, and word of mouth can only get you so far… on Prosper, you need a credit score of 640 or higher to get a loan, and you need some serious cash to be a lender. Is the Twitter generation really the one to target here?

Some metrics from SmartyPig’s recent $100 giveaway might be helpful. SmartyPig is an online service that helps consumers save money for big events through a series of financial and social tools. On the day of their contest, SmartyPig grew by 51 followers (+1.2%). In the ensuing seven days, their follower count stayed flat, and a week later, actually dropped by 37 followers. Compare those results to the impact of a mention in a New York Times article on July 2nd, which yielded 79 followers (+2.0%) on the day of the article, and arguably netted 170 followers (+4.4%) over the three-day weekend. Further, follower growth continued on an upward trend after the article.

Prosper hasn’t had an article in the New York Times since their faux relaunch in April, so maybe the $500 would be better-spent on a plane ticket to New York and some climbing equipment. Now that’s publicity!

Related posts:

1. Prosper Can’t Even Cash In on Porn Star
2. Prosper Takes Debt Financing Bridge at 15% interest
3. Prosper Relaunches with SEC Approval, Secondary Market

In Kiva’s July newsletter, they promoted a video called “If I Had $25“, a play on the Barenaked Ladies hit “If I Had $1,000,000“, created by johnbr2, a musician from Decorah, Iowa:

The song is both Kiva-accurate (buying yaks and looms), well-sung, and hilarious. An interlude that discusses the “cultural imperialism” of Kraft dinner is particularly funny.

Among the highest-quality user-generated content, Zopa Italy takes the cake with entries from their Zopacontest, held in November 2007 to promote the upcoming launch of their site. Many entries are professional and captivating, but the winning entry went to Silvia Casali for her beautiful animation:

Lending Club’s video contest back in 2007 to promote the fledgling Facebook-based site yielded a bunch of entries, and the first place, $3,000 winner was the well-produced “Teddies” video, featuring a small-businessman-with-medical-bills storyline. Among the lot of excellent videos was one without fancy production value, but lovable in its honesty, titled “The Worst Entry For The Lending Club Video Contest“:

Back in 2007 a song entitled “Prosper Panhandler song” was posted by an artist called Underwater Bass Player. The bluesy ballad focuses heavily on Prosper’s now defunct user forums, and in the song, the author agonizes over which Prosper group to pick before eventually settling on one called “Everyday People“:

What other good social media have you seen related to P2P lending? Share it in the comments.

Related posts:

1. Zopa announces launch of Zopa Japan
2. Zopa US – the boy who cried wolf
3. Prosper Hosts Twitter Gimmick To Draw New Customers

In the blog post, Prosper CFO Kirk Inglis bragged that Prosper is the only consumer lending site that gives investors full pricing control through its auction marketplace. Bravado aside, Inglis’s argument was that without auction pricing, investors wouldn’t have the opportunity to price loans according to their personal risk tolerance. Prosper has always had an auction pricing model, and CEO Chris Larsen emphasized in the company’s relaunch message that selling securities at auction in the Prosper style (where bidders place binding, irrevocable bids) had not previously been allowed by the SEC.

Reflecting Lending Club’s opposing approach to loan pricing, CEO Renaud Laplanche stated in his investor update that as of July 30th, the average interest rate charged to borrowers would be raised by 50 basis points. Lending Club cited as the reason for the rate change “the consistent rise in rates charged by major credit card companies and banks over the last few weeks,” although according to Bankrate.com’s personal loan rate trends (at right), rates have been steady since late May.

Despite the overall increase in rates, A-grade borrowers on Lending Club will actually see a decrease in rates of  0.46%, “to reflect the outstanding performance of the A grades and reinforce Lending Club’s attractiveness to the most creditworthy borrowers.” Lending Club has made 868 A-grade loans to date, and although a handful are behind in payments, none of them have defaulted (defined as 120+ days past due).

Now that Prosper and Lending Club run otherwise identical social lending sites, expect more posturing on the few differences, like loan pricing. So far it remains to be seen which pricing model will prevail. Prosper’s is certainly more flexible and requires less company intervention, but lenders weary of Prosper complain that investors “pile on” to good listings, driving rates lower than they should be for the risk involved. A Lending Club investor’s recent advice to a new lender on a discussion board warned “Last, but most important. DO NOT use the Lending Match option.” Apparently, for this investor, Lending Club’s pricing was reliable, but their underwriting was not.

What do you think? What are the pros and cons of the loan pricing models? Add your thoughts below.

Related posts:

1. Lending Club Adds Self-Directed IRAs
2. Prosper Relaunches with SEC Approval, Secondary Market
3. Prosper Adds Florida Lenders, Lending Club Adds Missouri

As of this writing, on the surface, Prosper is showing a strong lead, with over four times the available loan requests that Lending Club offers, 485 to 108. On the lender demand side, Prosper is also leading with 115 loan listings over 10% funded, compared to Lending Club’s 90.

Of course, Lending Club is more selective of its borrowers, and applying Lending Club’s borrower requirements to Prosper’s listings puts Lending Club in the lead, 108 loan requests to Prosper’s 98. Another detail in Lending Club’s offering is that loans that are 100% funded are taken out of circulation: there is no bidding, so loans go away once they reach the amount requested. When Prosper’s 27 listings that are 100% funded are removed, Lending Club has nearly a 50% lead, 108 to 71.

How did Prosper drag in so many borrowers so quickly after launch? Prosper has been operating since 2006, and they claim over 830,000 registered users. So it’s not hard to imagine that tapping a small percentage of their existing user base could generate a ton of listings. But the Prosper PR machine has also been hard at work, and appearances like the one below on MSNBC can’t hurt to bring in some high-quality borrowers like the ones Prosper will need to get through their new credit requirements.

Ultimately, measuring listings is a bit of a fool’s errand. What will matter in the long run will be whether Prosper and Lending Club can draw enough borrowers and lenders together to create a real business for the social lending middlemen. And those metrics will only be comparable once Prosper starts funding loans. So far they have actually funded one loan for $3,500, but if it’s a loan to the CEO’s dad, does it count?

Related posts:

1. Lending Club Raises Rates, Prosper Pushes Auction Model
2. Prosper Adds Florida Lenders, Lending Club Adds Missouri
3. Lending Club Posts Strong 1H 2009, Loans Growing 7% Per Month

Now that the quiet period is over, Prosper finally provides some details about what was holding up their S-1 registration with the SEC. Although they had to give up on the “open market” concept, Prosper seems to have gone to the mat and convinced the SEC that an auction pricing model was critical to the marketplace. According to the launch blog post, “the SEC has never permitted Wall Street investment banks or any other institution to run a true auction where investors could make an irrevocable bid that committed funds prior to the establishment of a final rate.” In past auction-priced sales, such as Google’s 2004 IPO, bids could be cancelled at any time before the final price was set. Prosper is hanging its hat on its auction model, which, at this point, is the main differentiator between Prosper and Lending Club.

Although there are not yet any new listings, Prosper’s marketing team has been hard at work, with a new name, “Prosper, The Loans Marketplace” (grammar is so complicated), a matching logo, and a highly-publicized Twitter account @prosperloans (@prosper was taken). Prosper has replaced the press links on the home page (to gushing articles from major media outlets) with links to Facebook, Wikipedia, and most confusingly, Yelp, where Prosper has 3 reviews, 2 of which are 1 star (the lowest rating).

As for the site itself, not many changes are evident since the first re-launch in April. On the borrowing side, borrowers from all states except Iowa, Kansas, Maine, and North Dakota are able to borrow. The minimum credit score for borrowers has been raised from 520 to 640.

On the lending side, lenders may only participate from California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin and Wyoming. If they qualify, lenders are asked to re-sign all six(!) of Prosper’s legal agreements, after which they may be presented with suitability requirements (depending on their state of residence). In California, lenders are required to have a gross income of $85k or a net worth of $200k if they plan to invest more than $2,500 on the site.

Lenders who want to trade notes must sign up as a Folio Investing customer, after which they may sell any notes by putting them up for auction.

Related posts:

1. Prosper Relaunches in California Without SEC Approval
2. Prosper’s Latest SEC Filing Excludes Open Market
3. Prosper’s S-1 Approved by SEC; Re-Launch Expected Tuesday