Peer lending (also known as “P2P” or peer-to-peer) is a term used to describe a new way for borrowers to secure a loan electronically from individual investors through a web based platform instead of a traditional bank. This industry, also referred to as Marketplace Lending, has grown significantly in the last 10 years. It allows individual investors to benefit from the loan interest paid while the borrowers get their loan proceeds efficiently and cost-effectively.
“Crowdfunding” is a term used to describe a way for entrepreneurs, start-ups, emerging companies and individuals to attract capital using a combination of internet platforms, contacts within one’s social networks and the new regulations through the JOBS Act passed by Congress and signed by the President. The premise of crowdfunding is that it’s easier to raise money in small increments from a lot of people rather than a large amount of money from one person. Unlike P2P lending, crowdfunding does not always offer a financial return — sometimes the person contributing money is doing so to “pre-order” a product that will be made with the contributed funds.