Peer-to-Peer Lending Pain

It has been a year of setbacks for peer-to-peer lenders such as Prosper, Lending Club, and Zopa, which use the Web to connect those who need a loan with individuals willing to act as lenders. Once positioned to become an alternative financing spigot for entrepreneurs, the nascent industry has been hit by regulatory issues, a slow economy, and a slew of defaults.

The biggest player, Prosper, stopped making new loans in October. It will resume after it completes its registration with the Securities & Exchange Commission. That has left the field to smaller rivals such as Lending Club, which completed its filing last fall. Zopa, a British company, pulled out of the U.S. market in November after deciding that its business model, which relied on credit unions, simply wasn't attractive. As Prosper prepares to reopen this spring, one question looms: Can the industry attract enough lenders to be a viable source of funding for entrepreneurs?