Financing Web Work with Prosper.com

Whether you own your own business, telecommute, or simply scrounge what you can online, chances are at some point you’ve needed money — maybe to hire temporary help, buy new equipment, or finally pay off that coffee shop tab. Credit cards often have very high interest rates and traditional lending may not accommodate the fickle nature of a geek’s back-of-napkin bookkeeping. Prosper.com could be the solution.

Prosper.com enables peer-to-peer loans. The April 2007 issue of Fast Company described Prosper as a place where:

Borrowers create listings that detail how much money they need, what it’s for, and the highest interest rate they’re willing to pay. Prospective lenders offer specific amounts, and compete on the rate they’re willing to accept. As more lenders bid, the ultimate rate tends to get driven down.

Because Prosper is less bureaucratic and more people-centric than other forms of lending, you must take into account human nature. Here are five things to keep in mind when you’re looking for a peer loan:

1. Not all requests get funded. That sounds obvious. However, what isn’t as straightforward is how this affects investor psychology. The bidding phase for a listing may continue for up to a week. During this time lenders are browsing, researching, and vetting for the promise of a return. When a loan isn’t funded disappointed investors now have to start their search all over again – that’s a hassle. Providing details on how the money will be used, profit/loss summaries from relevant work, and what expertise you have to make the venture successful are vital to wooing those who may have been previously jilted. Provide enough information so that starting a financial relationship with you is as comfortable as possible.
2. Place your request at an interest rate higher than what you’re comfortable with paying back. A higher interest rate attracts more investors. More investors translate to more bidders and these bidders ultimately drive down the overall percentage rate. If done correctly the ending percentage can often be below that which you can safely accommodate in your budget. Further, if things don’t go as expected and the final rate is higher than what you’re willing to pay you’re under no obligation to take the loan.
3. Pimping out your basement office Trump style requires a lot of cash (not to mention gold leaf). Rather than asking for the entire amount all at once a better tactic is to break the loan up into smaller amounts. Smaller loans inspire more confidence that they’ll be paid off. Paying off a small loan also helps build a positive record with the community that will be visible on subsequent requests.
4. No matter how sorry your situation is never, ever let a sob story serve as the first impression strangers have of you. It can be very tempting to put the most tragic, Hallmark-worthy information in a post to try and win sympathy from onlookers. However, remember that investors are parting with their money because they expect a return. They want to see that the person on the other end has their act together enough to pay the loan back.
5. Don’t expect to post a listing, walk away, and pick up money a week later. Make yourself available. Total strangers are taking a chance on you. There will be concerns that arise. Answer each question as thoroughly and quickly as possible. By doing so you will not only be responding to their immediate requests but providing a deeper example of how you conduct your affairs.

If all pans out as you’ve planned, someday you may find yourself on the other side of that transaction.

Would you considering financing your web-workerdom with peer-to-peer investing? How do you fund your dreams?