Marketplace Lending vs Peer-to-Peer Lending: What Is the Difference?

The terms marketplace lending and peer-to-peer (P2P) lending are often used interchangeably, but they are not quite the same thing. P2P was the original model — individual investors funding individual borrowers directly. Marketplace lending is the evolved version where institutional money dominates.

For business borrowers, the distinction matters less than understanding how these platforms work today.

Definitions and Evolution

How P2P Started

Peer-to-peer lending emerged in the mid-2000s with a simple premise:

• Cut out banks — Connect borrowers directly to individual investors
• Better rates for both — Borrowers pay less than credit cards; investors earn more than savings accounts
• Crowdfunded loans — Multiple small investors fund each loan together
• Online efficiency — Technology replaces bank overhead

How Marketplace Lending Works Today

The industry evolved significantly after 2015:

• Institutional dominance — Hedge funds, banks, and asset managers now fund most loans
• Automated investing — Individual investors use auto-invest features, not manual selection
• Direct balance sheet lending — Some platforms fund loans themselves, then sell to investors
• Multiple funding sources — Same platform might use securitization, credit lines, and direct investment
• Business loans expansion — Originally consumer-focused, now significant business lending

For Business Borrowers: What Matters

As a borrower, the funding source matters less than loan terms:

Major Marketplace/P2P Business Lenders

These platforms offer business loans through marketplace models:

• Funding Circle — Pure business focus, loans up to $500,000
• LendingClub — Originally P2P, now broader marketplace
• OnDeck — Marketplace model with institutional funding
• Kabbage (now part of Amex) — Automated line of credit
• Fundbox — Invoice financing and term loans

Marketplace vs Traditional Banks

How marketplace lending compares to conventional bank loans:

When Marketplace Lending Makes Sense

Consider marketplace platforms when:

• Banks are too slow — You need capital in days, not months
• Credit is good but not great — 620-680 range fits marketplace better than banks
• Loan size is moderate — $50,000-$300,000 is the sweet spot
• Documentation is limited — You have bank statements but not audited financials
• You value convenience — Online application, fast decisions, minimal meetings

Bottom Line

Today, there is no practical difference between P2P and marketplace lending for borrowers. Both terms describe online platforms that connect you with capital from various sources. Focus on comparing actual loan offers — rates, terms, fees — rather than how the platform labels itself.