Online marketplace lending, what used to be called peer-to-peer (P2P) lending, is very much in a growth stage. But, like a lot of sectors that grow from a root bulb into a multi-branch system of complexity, that growth is leading the sector into segmentation. According to a report published by PwC, the sector issued approximately $5.5 billion in loans in 2014. In May the same year, Charles Moldow said the industry is destined to become a marketplace lending sector is growing and offers investors some promising returns.
Four Key MarketPlace Lending Sectors
There are four key segments of marketplace lending on separate growth tracks with tons of potential for investors to earn back huge returns in the years to come. Those four segments are:
Consumer Lending
You may remember the day when, if you wanted a loan—say, to add onto your house or to buy a car—you had to walk into a bank and ask to borrow money. Today, consumers have another option. They can seek out a loan through one of the many P2P platforms that allow them to borrow from the marketplace. It’s important to note, however, that “the marketplace” no longer includes just individual consumers. We are now seeing institutional investors (banks, mortgage companies, and other traditional lenders) getting in on the game.
Small Business Lending
Forbes reports that online marketplace lending platforms had issued more than $7 billion in loans as of the fourth quarter 2013. Lenders are placed in three different categories of small business lending: P2P, marketplaces (where small businesses can comparison shop for loans), and platforms that use non-traditional criteria based on balance sheet data to make loans to businesses. Since small businesses are the backbone of the U.S. economy, there is a lot of potential for growth in this segment.
Student Debt Lending
Last September, marketplace lender SoFi made history when it raised $1 billion in a venture funding round led by SoftBank. SoFi specializes in student loan refinancing. Marketplaces like Overture and Credible provide a place for students to shop for student loans in the private lending market. With the cost of college tuition on the rise, there is huge potential in the student loan marketplace for investors to earn great returns.
Real Estate Lending
Finally, marketplace lending has hit the real estate market. Companies like Sharestates are making it possible for real estate investors to fund projects through a marketplace dedicated to connecting investors with project sponsors. While this segment of marketplace lending is still small, there is room for huge growth, and I think we’ll see that growth in the next five years. There is plenty of room for specialization too. From commercial lending to REITs, and everything in between, real estate investors are no longer constrained to the physical world. Real estate investing has gone virtual.
Which Type of Loan is Right For You?
Investors looking to expand their portfolios and find their next money-making deals can be confident that marketplace lending is a good place to earn. All the projections say that traditional bank lending is on the decline while marketplace lending is on the rise. Millennials Bottom line: Marketplace lending is the future living in the now. This is the best time to get in. Pick your entry point.
