Why Has ‘Family Lending’ Failed and ‘Peer-to-Peer Lending’ Succeeded?

Several companies have tried and failed to create a successful ‘family lending’ platform, whereby family members can lend one another money. Similar to a peer-to-peer lending platform, also called crowdfunding, a family lending platform enables relatives to lend one another money while the “platform” intelligently handles the contractual details and the loan servicing, e.g. payments. (Conversely, peer-to-peer lending platforms are loans from complete strangers). This seems like a great idea, the family lending model via an organized digital platform similar to Prosper.com. This would give family members more comfort when lending to other family members, since the platform takes care of all of the details. Not to mention family members who are lending can take advantage of rates of return that they would otherwise not be able to get in the current environment.

Many have tried and failed at the Family Lending Platform. CircleLending, a startup out of Massachusetts, launch its Family Lending Platform in 2000. This later became, “Virgin Money USA,” a Virgin Group Company. The Virgin Group started Virgin Money USA in 2007, which was a stab at the Family Lending Platform business model, but finally withdrew from the U.S. market in 2010. The Family Lending Platform seems like an idea that could have been translated into a viable business model.

So why did it fail? Please share your comments below regarding family lending via a platform such as Prosper.com and why you think it failed. I am curious to see what others have to say about this topic of family lending via an organized, digital platform.

Posted by Corey Dutton, Private Money Lender