If you’re a former felon, one of the best things you can do is start a small business. The reason we say this is because when you start a small business as a former felon, no one needs to know about your criminal background and you can truly start over.
But the problem is, where can you find small business loans for felons?
Unfortunately, many of the conventional places you go for a loan, such as a local bank, may run a background check on you and deny you a loan because you were previously incarcerated.
But that’s okay, there is another way to get a small business loan as a former felon and it involves using a platform called Prosper.com.
It’s a peer-to-peer lending platform that allows you to complete the entire process online, better yet, they never do a background check so your criminal history has absolutely no impact on getting a loan.
Points Covered in this Article:
- How Peer-to-Peer Lending Works
- The Function of Intermediaries
- Is Prosper a Legitimate Platform
- Things to Know About Prosper.com
- How to Apply for a Small Business Loan
One of the ways a felon can obtain a small business loan is to take advantage of a peer-to-peer lending platform. Using peer-to-peer lending causes a win-win situation for both former felons and investors because former felons get a lower interest rate and investors get a higher return on their investment.
How Peer-to-Peer Lending Works
Peer-to-peer lending, which is abbreviated P2PL, is a practice of lending money that is also known as crowdlending. No bank or other traditional type lending institution is used for this type of transaction. P2PL involves only a borrower and investor. For example, on Prosper.com, this alternative loan source cuts out the middleman and connects individuals who need to borrow money with people who wish to invest in a loan.
Using Prosper.com is simple. You select a loan amount and explain that the loan is for a small business. Investors review the listings of possible loans and choose financing requests that meet their specific criteria. So long as your loan seems like a good investment to them, they will invest. Your criminal background will have absolutely no impact on your loan.
Once your loan gets funded, then you’ll make fixed payments each month and the investor receives a part of those payments in their Prosper investment account.
If you are a borrower of a Prosper loan, you will pay interest on your loan in the range of 6% to 36%, depending on a number of financial criteria.
A P2PL loan is usually a personal loan that is unsecured and therefore it’s typically a little easier to get. A “secured” loan, on the other hand, is “secured” by collateral such as jewelry, cars, or homes.
The Function of Intermediaries
Lending intermediaries, such as Prosper.com, are classified as not-for-profits. Therefore, they generate income by collecting a one-time fee on the funded loans and assessing a loan service fee to the investors of the notes – which is an annual fixed amount.
Because the services are automated, intermediary companies, such as Prosper.com, are able to operate under a lower overhead, thereby providing lending and investment services more cheaply than financial institutions that take a more traditional stance.
This is awesome for former felons because you are able to borrow cash at a lower interest rate and lenders can experience higher returns – again, a win-win situation. Beyond that, investors tend to really like P2PL platforms because the loans aren’t as risky as other investments like the stock market.
Is Prosper a Legitimate Platform
There are a lot of P2PL platforms out there and most of them are still pretty new, so how do you know if Prosper is a legitimate place to get a loan for a small business as a former felon?
Below are some key highlights you should know:
- The company has funding from BlackRock, Sequoia Capital, Accel Partners, Agilus Ventures, Benchmark Capital, CrossLink Capital, DAG Ventures, Draper Fisher Jurvetson, Fidelity Ventures, Omidyar Network, Meritech Capital Partners, TomorrowVentures (an investment vehicle of Google Executive Chairman Eric Schmidt), and QED Investors. Or, put simply, there are a ton of very smart (and successful) companies invested heavily in Prosper.com.
- Loans originated through the Prosper marketplace are made by WebBank, a Utah-chartered Industrial Bank, which is regulated by the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC).
- Prosper Loans has funded more than $3 billion in loans.
Things to know about Prosper.com
You will have a payment every month. Just like any other loan you get, you will need to make a payment back to your lender(s) every month. You do all of this within the Prosper online platform.
You’ll have a lot of people investing in you. Because crowdlending involves pooling a bunch of cash from multiple sources to finance loans, you’ll probably have 25 or more people funding your loan. Keep that in mind if times get tough and you’re thinking about skipping a payment. Also, keep in mind that your identity is kept safe so it isn’t dangerous.
Loans will impact your credit. Just like any other loan, the loans from Prosper for your small business will impact your credit if you default. Your best bet is to get the loan and pay every month on time.
It’s a win-win for investors and borrowers alike. The cool thing about the Prosper platform is that borrowers can get a better interest rate while investors get a better return. Prosper takes a small one-time fee in each transaction to keep itself a business, but it’s much less than what traditional banks do.
In the P2PL marketplace, Prosper is a market leader and a popular online alternative to traditional investing and lending options. Any felon who is interested in obtaining a small business loan should check out the lending services offered on the site. Obtaining a traditional loan can almost be next to impossible. Therefore P2PL finance is an alternative that is viable.
How to Apply For A Small Business Loans For Felons
Once done, your loan will go on their marketplace and once it gets funded, you’ll have all the funds you need to start your small business and make your dreams come true.
Good luck, and let us know how it goes in the comments below.