PEP – Galesburg Mini-loans

by Mike Kroll

A few weeks ago I reported on some proposed changes to Galesburg's approach to economic development including the broadening of available incentives. It is not unusual for our city fathers and economic development officials to look toward incentives to attract businesses to Galesburg, but what is missing from this discussion is how critical it is that we find ways to assist our struggling residents as well. We have learned that GREDA officials are working to create a no-so-micro loan program for area businesses but that the details are not yet worked out. Meanwhile we have homeowners who also need a helping hand, or residents who need a little help and few places to which they can turn. That is why I am working to create a system of mini-loans for our neighbors who need a little help.

Micro loans have been a huge success in developing nations, often with loan amounts less than $100 but such small amounts are not really practical in all cases. What I am terming as mini-loans are three-year unsecured loans in amounts ranging from $1,000 to $5,000. These would be real loans, repayable with interest that reflects the credit worthiness of the borrower and which offer a real return for participating lenders.

Borrowers must either live or work in the Galesburg area, be a legal U.S. resident, possess a social security number and have a bank account of some kind. We hardly expect to attract the wealthy to this program, they already have many available lending sources but neither is this a program for the financially irresponsible. While we will do our best to assist those without a credit history or with a checkered credit history the interest rates paid will reflect the risk and borrowers with really bad credit will probably not find their loan requests funded.

By this point I hope I have raised your curiosity about how this can be accomplished. I am neither independently wealthy nor do I run a bank. I am willing to invest some money in this program and if I am joined by enough other potential lenders together we will be able to fund a number of worthy Galesburg borrowers. Certainly we are taking a risk but this isn't the same as lending fifty bucks to your cousin, borrowers will be signing promissory notes and their performance, good or bad, will be reflected in their personal credit rating.

This is all possible thanks to an Internet website called <http://Prosper.com>Prosper.com that describes itself as "a marketplace for credit that enables people to lend money to other people in a safe, efficient manner." Prosper is made up of members who play roles as either lenders or borrowers or sometimes both. At the present time nearly there are over 590,000 member and $121 million in outstanding loans. Prosper systematizes the process of person-to-person loans and provides a convenient mechanism for pooling the resources of multiple lenders to fund loans. Thereby spreading the risk across many people and permitting lenders to participate in a limited way in a number of loans.

Lenders need not be from Galesburg and most likely the majority of those funding loans from our group will not be from here. But to make this group a success it will be important that a number of us from the Galesburg area be willing to risk some of our own money on loans in this group. I will personally pledge to bid at least $50 apiece on all loans I endorse as group leader. Lenders can bid anywhere from $50 up to the entire loan requested but most will bid between $50-$250 per loan. Just as borrowers must first meet Prospers qualifications the same is true with lenders who must supply a social security number and banking information that will be used to verify identity. And, of course a prospective lender must transfer funds to Prosper before bidding.

Any Prosper member will have the opportunity to "bid" on any loan in our group in amounts of $50 or more per loan. Lenders are able to study anonymous borrower requests and if they decide to bid on any given loan they specify a dollar amount and a minimum acceptable interest rate for that loan. You can even bid more than once on the same loan if you choose. If sufficient dollars are bid to cover the loan request within a specified time frame then a deal is struck with the borrower and monthly payments from the borrower are proportionally repaid to each lender over the next 36 months.

Will the concept of Galesburg mini-loans work? I just don't know. The success will depend upon the willingness of people to participate. We will need potential lenders to sign-up with Prosper and commit to biding on loan requests from Galesburg borrowers. It will also be necessary for Galesburg borrowers to sign-up and create a loan listing. There are a number of ways you can accomplish this including simply going to <http://Prosper.com>Prosper.com and investigating for yourself. Or, you can e-mail me (<mailto:Mike@ZBurg.net>PEP@ZBurg.net) and I will send you a return e-mail inviting you to join the Galesburg Mini-loan group. Either way the point is to get local people involved in helping each other.

I have experimented with Prosper since mid-November of last year and am currently participating in 21 active loans ranging from moderate to excellent credit risk. While none of my loans so far has been to people from the Galesburg area my experience has been positive as all of my borrowers have made timely payments. I'm hardly getting rich on Prosper but it does seem to pay better than most available CDs. I like the concept and believe it might provide a nice vehicle through which Galesburg people can help their neighbors. Won't you join me?