Peer-to-peer lending allows individuals to lend money to other individuals without using a traditional finan-
58The outstanding business loans from credit unions are not
directly comparable with those of commercial banks because the credit union Call Reports do not allow construction and land development and agricultural loans to be taken out of the total.
59See H.R. 3380, Promoting Lending to America’s Small Busi-
nesses Act of 2009, and S. 2919, Small Business Lending Enhancement Act of 2009, for more information.
60In the 1998 SSBF, 69.1 percent of dollars outstanding were
owed to depository institutions, and 13.4 percent were owed to finance companies; in 2003, 63.7 percent of dollars outstanding were owed to depository institutions, and 16.2 percent were owed to finance companies.
61According to data from the G.20 Statistical Release, “Finance
Companies,” loans and leases for motor vehicles and business equipment accounted for 70 to 80 percent of all outstanding business loans between 2007 and February 2012. The G.20 Sta- tistical Release is available on the Federal Reserve Board’s web- site atwww.federalreserve.gov/releases/g20/current/g20.htm. 38 Availability of Credit to Small Businesses
cial institution. Since 2005, many peer-to-peer lend- ing sites have been launched on the Internet to link potential borrowers to potential lenders. In 2008, the
Securities and Exchange Commission (SEC) deter- mined that peer-to-peer lending must be regulated as securities. As a result, businesses and major sites were shut down while participants attempted to get their sites registered with the SEC and reconfigure their platforms to conform to the new regulations. Since relaunching, lending volumes have steadily increased, boosted in part by the financial crisis and difficulties encountered by traditional financial institutions.62 Peer-to-peer lending sites have seen a dramatic increase in the number of loans over the past several years. Loan-level data provided by Prosper.com and LendingClub.com—the largest peer-to-peer lending sites—indicate that dollar volume of peer-to-peer lending grew by nearly 300 percent between 2008 and 2011 (figure 10). The total dollars that went to small businesses has also been steadily increasing since 2009.63
Over the past four years, Lending Club and Prosper have been responsible for over $50 million in small business loans (table 20). For Prosper, business loans represent 16.1 percent of all dollars lent over this period; for Lending Club, business loans are only 5.6 percent of loan dollars. However, the average
62The result of the 2008 SEC regulation is most apparent for
Prosper.com, which had been responsible for nearly 80 percent of total dollar volume prior to the shutdown (see Bogoslaw, 2009).
63No information is provided on the size of the firms borrowing
funds; however, given the small size of the loans, it is inferred that all peer-to-peer lending to businesses is to small businesses.
Table 19. Outstanding loans to businesses by finance companies, 2007–12
Billions of dollars Category 2007 2008 2009 2010 2011 2012: Q1 Business 598.0 573.3 463.6 447.2 441.4 436.5 Motor vehicles 103.1 91.4 61.2 70.6 70.7 73.3 Retail loans 15.9 12.4 9.9 9.3 10.8 11.7 Wholesale loans1 56.0 49.2 35.6 46.2 44.5 46.0 Leases 31.2 29.8 15.7 15.1 15.3 15.6 Equipment 322.3 325.1 281.1 295.0 288.8 283.9 Loans 105.9 100.2 79.6 104.2 104.2 105.1 Leases 216.4 224.9 201.5 190.7 184.5 178.8
Other business receivables2
97.3 95.0 89.2 81.6 82.0 79.3
Securitized assets3 75.3 61.8 32.1 .0 .0 .0
Note: Data were revised June 2012.
1 Credit arising from transactions between manufacturers and dealers—that is, floor plan financing.
2 Outstanding balances of pools upon which securities have been issued; these balances are no longer carried on the balance sheets of the loan originator.
3 Includes loans on commercial accounts receivable, factored commercial accounts, and receivable dealer capital; small loans used primarily for business or farm purposes;
and wholesale and lease paper for mobile homes, recreation vehicles, and travel trailers. Source: Federal Reserve Board, Statistical Release G.20, “Finance Companies.”
Figure 9. Venture capital
0 25 50 75 100 Billions of dollars 2012 2010 2008 2006 2004 2002 2000 1998 1996 Investments, 1995–2012 Q1 2007 2008 2009 2010 2011 2012:Q1 Venture capital
Investments (billions of dollars) ... 30.8 30.5 19.7 23.3 28.4 23.0 Number of deals ... 4,124 4,111 3,065 3,526 3,673 3,032 Average deal size (millions of dollars) 7.5 7.4 6.4 6.6 7.7 7.6 Seed, start-up, early stage
Investments (billions of dollars) ... 7.6 7.2 6.6 7.4 9.2 7.0 Number of deals ... 1,603 1,632 1,312 1,617 1,810 1,372 Average deal size (millions of dollars) 4.7 4.4 5.0 4.5 5.1 5.1
Development stage
Amount and number of investments, 2007–12
Note: Data are at an annual rate.
Source: PricewaterhouseCoopers National Venture Capital Association MoneyTree Report.
loans funded by Prosper have higher interest rates and are one-half to two-thirds the average loan funded by Lending Club. Although the total dollar volume is small relative to other sources, this high growth reflects the overall increase in all types of Lending Club and Prosper loans and a rapidly grow- ing influence in this type of lending.
On a final note, both sites also provide some informa- tion on loans that were not funded. The data indicate that there were over $600 million in requests for busi- ness loans over this four-year period that were not funded, nearly $400 million in 2011 alone. This unmet demand suggests that as the economy began to improve and standards at commercial banks were still relatively tight, small businesses began searching for alternative sources of finance.
Similar to peer-to-peer lending, many crowdfunding sites have surfaced online. Crowdfunding involves large numbers of people purchasing small equity stakes in the firm. However, the legality of sites such as Kiva, MicroPlace, Indiegogo, and Kickstarter has come into question, and it has been argued that such sites should be registered as broker–dealers to facili- tate the selling of shares in order to minimize fraudu- lent offerings. In early April of 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law; it creates a crowdfunding exemption from SEC regulations for firms raising less than $2 million, but with limits on individual investments. Due to the act’s recent passage, data are not yet available on the extent to which small businesses use crowdfunding sources to raise capital.
Figure 10. Peer-to-peer loans funded, 2008–11
0 50 100 150 200 250 300 350 Millions of dollars 2008 2009 2010 2011
Lending Club other loans Lending Club business loans Prosper other loans Prosper business loans
Source: Calculations from individual loan data from LendingClub.com and Prosper.com (see www.lendingclub.com/info/download-data.action and www.prosper.com/tools/DataExport.aspx).
Table 20. Small business lending by Prosper and Lending Club, 2008–11
Lender and year Number of loans Dollar amount funded Average dollar amountfunded Average interest rate
Prosper 2008 1,714 15,240,122 8,892 17.6 2009 212 1,165,140 5,496 18.4 2010 550 3,092,768 5,623 20.3 2011 1,195 9,092,801 7,609 23.5 Lending Club 2008 127 1,683,250 13,254 12.0 2009 358 4,392,125 11,935 14.6 2010 466 5,384,875 11,556 12.5 2011 975 13,861,950 14,217 13.1
Source: Prosper.com and LendingClub.com.