SAN FRANCISCO (Reuters) – Prosper, a leader in the fast-growing “peer-to-peer” lending sector, said on Tuesday it raised $20 million from venture capital firms led by Sequoia Capital, stepping up competition with rival Lending Club.

Peer-to-peer lending takes the banks out of the picture providing a niche for people with less than perfect credit or those who do not or cannot prove their income.  It is actually pretty neat and useful.  I have an investor account with Prosper and as an investor you can review loan listings and invest in people that meet my specific criteria.  As a return, I get a portion of the monthly payment.  Many investors can and do invest in one listing and the monthly payments are distributed according to your percentage of investment.

As a borrower is where this type of financing fills a niche.  Borrowers choose a loan amount, purpose and list their loan request.  As a borrower you can watch as investors invest in your loan and when the total requested is reached, you get your money and make your payments.  Rates for all loans start at 6.59% and seasoned returns on investments are around 9.69% for investors.

Prosper’s business has picked up by double over last year.

While borrowing money for anything goes against our goal of becoming debt free, if you have a real need for financing and cannot go through a typical source, places like Prosper and Lending Club provide a valuable resource.  With Prosper having over $447,000,000 in personal loans funded, I’d say they are filling a need for someone.

I would not consider a peer-to-peer lender my first choice but if you are in a situation where you absolutely have to borrow money and have exhausted all other avenues, give it a try.

Below are just some of the types of loans available:

Business

Auto

Boat

Wedding (you’re in for trouble if you are financing your wedding)

Home Improvement

Debt Consolidation

With amounts from $2000 to $25,000 and fixed rates starting at 6.59%, there’s bound to be something for everyone.