industry financial technology lending marketplace founded california usa 2005 headquarters san francisco ca area served united states key people stephan vermut executive chairman ; aaron vermut ceo ; ron suber president products personal marketplace number of employees 457 website www.prosper.com prosper marketplace inc. is a san francisco california based company in the peer to peer lending industry . the company operates prosper.com a website where individuals can either invest in personal loans or request to borrow money . contents 1 overview 2 evaluation of credit risk 2.1 prosper ratings 3 business model 3.1 secondary market trading platform 3.2 ira investor accounts 3.3 cease and desist order 3.4 litigation 4 2009 post sec relaunch 5 financial structure of prosper loans 6 market performance 6.1 loan performance 6.2 loan performance prior to july 2009 6.3 financial history 6.4 better business bureau rating 7 loan to terrorist 8 see also 9 references 10 external links overview edit prosper marketplace is america s first peer to peer lending marketplace with over 7 billion in funded loans . 1 borrowers request personal loans on prosper and investors individual or institutional can fund anywhere from 2 000 to 35 000 per loan request . in addition to credit scores ratings and histories investors can consider borrowers personal loan descriptions endorsements from friends and community affiliations . prosper handles the servicing of the loan and collects and distributes borrower payments and interest back to the loan investors . prosper verifies borrowers identities and select personal data before funding loans 2 and manages all stages of loan servicing . prosper s unsecured personal loans are fully amortized over a period of three or five years with no pre payment penalties . prosper generates revenue by collecting a one time fee on funded loans from borrowers and assessing an annual loan servicing fee to investors . from 2006 to 2009 prosper operated a variable rate model . prosper acted as an ebay style online auction marketplace with lenders and borrowers ultimately determining loan rates using a dutch auction like system . 3 effective december 19 2010 prosper filed a new prospectus with the sec changing its business model to use pre set rates determined solely by prosper based on a formula evaluating each prospective borrower s credit risk . 4 5 under the new approach lenders no longer determine the loan rate via price discovery in an auction . instead they simply choose whether or not to invest at the rate which prosper s loan pricing algorithm assigns to the loan after it analyzes the borrower s credit report and financial information . the idea for the service is derived from group banking concepts such as rotating savings and credit associations . other motivating ideas derive from the concepts of microlending and microfinance . prosper publishes performance statistics on its website and all market data is available to the public for analysis . 6 all transactions are in us dollars ; lenders and borrowers must be us residents . prosper s 10.69 % annualized seasoned rate of return net of fees for the period of july 1 2009 through september 30 2011 was independently audited 7 by ashland partners & company llp in december 2011 . 8 in 2016 prosper marketplace unveiled prosper daily its first mobile app . the free prosper daily app is designed to give consumers a powerful suite of tools to make smarter financial decisions including viewing all their financial accounts in one place budgeting and tracking spending by category identifying questionable charges and monitoring their free credit score which is updated monthly . 9 prosper opened to the public on february 5 2006 and was founded by chris larsen the founder of e loan and john witchel . prosper is backed by blackrock sequoia capital accel partners agilus ventures benchmark capital crosslink capital dag ventures draper fisher jurvetson fidelity ventures omidyar network an investment vehicle of ebay founder pierre omidyar meritech capital partners tomorrowventures an investment vehicle of google executive chairman eric schmidt and qed investors an investment vehicle of capitalone co founder nigel morris . evaluation of credit risk edit prosper has provided an increasing amount of information about prospective borrowers over time while also making various changes to its credit policy . prior to its 2008 quiet period and 2009 sec registration the company provided credit grades and other credit information about its prospective lenders . following the sec registration the company created a new model that determined prosper ratings instead . additionally new prospective borrowers were required to have an fico 8 credit score of at least 640 while returning borrowers only need a score of 600 to request a loan . 10 prosper ratings edit since its sec registration in 2009 prosper has provided a proprietary prosper rating for prospective borrowers based on the company s estimation of that borrower s estimated loss rate . according to the company that figure is determined by two scores 1 the credit score obtained from an official credit reporting agency and 2 the prosper score figured in house based on the prosper population . prosper ratings from lowest risk to highest risk are labeled aa a b c d e and hr high risk . 11 prosper rating estimated average annual loss rate aa 0.00 1.99 % a 2.00 3.99 % b 4.00 5.99 % c 6.00 8.99 % prosper rating estimated average annual loss rate d 9.00 11.99 % e 12.00 14.99 % hr 15.00 % business model edit prosper has a transaction based business model in which the company collects revenue by taking a fee on its customers transactions . borrowers who receive a loan pay an origination fee of 1.00 % to 5.00 % 12 depending on the borrower s prosper rating and investors pay a 1 % annual servicing fee . secondary market trading platform edit as borrowers repay over the three or five year fixed term of their prosper loan payments are distributed to investors accounts . this money may then be re invested into new prosper loans or withdrawn from prosper by transfer into the bank accounts of the prosper investors . in order to provide liquidity for its investors prosper has developed a secondary market for note trading in cooperation with folio investing . through the secondary market platform investors may buy and sell prosper loans notes at any time . notes are priced by the selling investor and may be either marked up or discounted . a transaction fee of 1 % applies to all note sales and is payable by the seller . wells fargo appears as a trustee in prospers note indenture . 13 ira investor accounts edit as of march 1 2012 prosper allows tax free or tax deferred investment via self directed ira accounts . traditional iras roth iras sep iras and 401 k rollovers are supported through prosper s ira custodian partners equity institutional and millennium trust . the minimum investment required to open a self directed prosper ira account is 5 000 . 14 cease and desist order edit on november 24 2008 the sec found prosper to be in violation of the securities act of 1933 . as a result of these findings the sec imposed a cease and desist order on prosper . due primarily to the novel nature of the peer to peer lending models the sec after review now treats all peer to peer lending transactions as sales of securities and requires that all platforms register with the sec . litigation edit on november 26 2008 a class action lawsuit was filed against prosper in the superior court of california county of san francisco california . the suit was brought on behalf of all loan note purchasers in prosper s online lending platform from january 1 2006 through october 14 2008 and alleges that prosper offered and sold unqualified and unregistered securities in violation of the california and federal securities laws . the lawsuit seeks class certification damages the right of rescission and the award of attorneys fees . prosper s insurer greenwich insurance company refused to pay for defense expenses claiming the matters involved were not covered by the insurance policy . on december 14 2010 judge richard a. kramer of california superior court issued a tentative decision ruling for prosper on this limited issue and holding that greenwich is obligated to defend prosper in the class action suit and to reimburse prosper s litigation expenses so far . although the decision did not rule on the lawsuit itself or address whether prosper might be entitled to insurance coverage in the event any of the lawsuit s claims proved meritorious it relieved prosper of significant legal expenses in the interim . 15 the lawsuit was settled july 19 2013 for 10 million dollars paid in installments over three years . 16 2009 post sec relaunch edit in july 2009 prosper reopened their website for lending investing and borrowing after having obtained sec registration for its loans notes . 17 after the relaunch bidding on loans was restricted to residents of 28 u.s. states and the district of columbia . borrowers may reside in any of 47 states with residents of three states iowa maine and north dakota not permitted to borrow through prosper . financial structure of prosper loans edit according to the prospectus issued to investors on july 13 2009 prosper notes since relaunch are obligations of prosper marketplace and not of the original borrower . prosper promises to pay the noteholder investor the funds it receives from the underlying borrower . noteholders of prosper s member payment dependent notes are considered unsecured creditors of prosper marketplace with limited recourse against it . the prospectus states that in the event prosper becomes insolvent or declares bankruptcy investors in prosper notes may lose all or part of their investment even if the underlying borrower continues to pay . investors recourse in the event borrower supplied information proves incorrect for any reason is also extremely limited . 18 this structure is identical to that adopted by lendingclub after sec registration . market performance edit loan performance edit prosper maintains a full public database of all loans issued through its marketplace on its website . this database and all market statistics can be accessed and queried for analysis of loan performance over time . an interface to run complex performance queries is supported and allows investors and the public to look into the performance of any subset of loans over whatever time period they choose . 6 prosper reports a 10.69 % annualized seasoned rate of return net of fees for all loans issued from its re opening after sec registration july 1 2009 to the 30th of september 2011 . prosper s returns for this period have been independently audited 7 by ashland partners & company llp . 8 a number of factors including prosper s decision to set the interest rates on all loans rather than let investors choose the rates they would accept occurred after prosper registered with the sec and began issuing new loan notes in july 2009 . additionally after prosper began setting the rates on all loans itself prosper significantly tightened the minimum credit quality necessary for a borrower to receive a prosper loan . many borrowers who received loans prior to 2009 which were priced by investors would no longer qualify for a loan at any rate under prosper s new underwriting policies . loan performance prior to july 2009 edit as of august 2008 approximately 18.5 % of all money loaned through prosper from inception february 2006 through june 2008 were in some form of delinquency . also more than 35 % of all loans that originated in february 2007 were in some form of delinquency . as of january 24 2010 prosper reported that 22.45 % of all money lent since inception had been charged off and an additional 2.51 % was delinquent but not yet charged