Finance 101 - 12.7.2016

Able Friends & Family: True Peer-to-Peer Lending

When you get a bank loan, where does the money come from? Generally speaking, it comes from depositors—regular folks, some rich, some less so. A bank will underwrite and structure the deal, but they're usually lending your money.

Starting in the 2000s, a wave of "peer-to-peer" lenders sprung up. Their basic insight was that they could remove the bank from the equation, and allow regular people to lend directly to borrowers. In doing so, they'd let the actual lenders (regular people) earn more of the reward... and bear more of the risk.

Peer-to-Peer Lending?

Strictly speaking, most "peer-to-peer" lenders are not truly peer-to-peer.

First, they're still acting as lending intermediaries. Most will originate the loans themselves (or through a bank partner...), and then sell a fractional interest in those loans to investors. Investors on the platform aren't actually buying a loan at all. They're buying an debt security (similar to the mortgage-backed securities of yore).

Second, they're not always dealing with regular people. A sizable chunk of the capital provided by most "peer-to-peer" lenders actually comes from investment funds. That's because sourcing small amounts of money from "retail" investors is a headache (quite frankly) and expensive to boot (lawyers, lawyers, and more lawyers). Some still allow retail investors, but many require that you be accredited (read: rich) in order to invest on the platform.

True Peer-to-Peer Lending

Able Friends and Family is a true peer-to-peer lending product in several senses.

First, unlike other peer-to-peer lenders, Able is not the originator. Able helps structure and service the deal, but the Backers provide the actual money and are the lenders of record. This means you know your lenders, and your lenders know you. You're not just an anonymized ID number.

Second, unlike other peer-to-peer lenders, Able doesn't help you source the money from strangers. You're required to source the money from people you know. Many business owners find this prospect a little intimidating (don't worry, you're not alone). But they also find it liberating. It puts you in the drivers seat of your funding process.

Third, unlike other peer-to-peer lenders, Able doesn't set the deal terms. You get to negotiate those directly with your lender. Since your lender is also someone you know and who knows you, you can often get more generous terms than from a bank or peer-to-peer lender.

If you're interested in learning more or creating a profile, you can get started here.

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