"The process is simpler because we do not underwrite the business itself, we just underwrite the business owner," Laplanche says. "The business owner can get a loan based on his own financial situation and his own credit history. It's fully automated and it's no different from getting a credit card or getting a personal loan from a bank."
Origination fees are between 2% and 5% of the loan amount.
Annual percentage rates, which includes the loan interest rate and fees, average about 11% for three-year loans and 14% on five-year loans. That compares with an average 15% to 24% at banks, Laplanche notes.
Websites such as Lending Club also become a sort of clearinghouse to borrowers by having someone in the middle saying "this investor is legit."But borrowers need to understand that risks are involved, since peer lending investors are not subject to the same rigorous guidelines as banks, warns Marilyn Landis, founder of small-business consultancy Better Business Concepts and a board trustee to the National Small Business Administration. Borrowers need to be extra careful when agreeing to loan terms -- perhaps even bringing in an accountant or counsel to review the terms. Landis also suggests that applicants find out whether they can repay the loan early and, if so, if a cost is involved. On the other hand, "because they are not regulated,