????Peer-to-peer lender Prosper.com is back in business.

????By Jessi Hempel

????Last October, the nascent peer-to-peer lending industry nearly saw its demise when the SEC forced its most established player, Prosper.com, to stop brokering new loans temporarily while it determined whether Prosper's loans should be classified as securities.

????Now, after a six-month quiet period, Prosper is open to lenders and borrowers again. It announced April 28 that it will once again broker loans, at least in California. Though the SEC has not yet issued approval, the California Department of Corporations has given Prosper CEO Chris Larsen the go-ahead to open its marketplace to lenders in California - and by previous cross-state agreements, borrowers nationwide.

????This is good news for Prosper and even better news for the niche business of peer-to-peer lending. Though the industry is small, having brokered just $90 million in loans last year, peer-to-peer lending has offered choices to small lenders whose options for car loans and help with credit card debt have increasingly dried up.

????Here's how Prosper works: Borrowers create a profile where they list their requests along with information to help assess the risk they present. Lenders compete to make three-year fixed-rate loans. In an auction model, the lender offering the lowest interest rate is awarded the loan. The company's revenues come from fees it charges lenders. So far, Prosper has brokered $181 million in loans made between its 830,000 members. But though the company has $40 million venture funding, it has weathered six months of the intense legal fees that can quickly put a startup out of business while at the same time taking in no revenues.

????Peer-to-peer lending (sometimes called person-to-person lending) is a great example of how technology is helping innovate an industry, in this case, the finance world. But with regulatory scrutiny in the United States growing more intense, many of these startups, like Loanio.com, have simply closed to new business. One of the earliest players, UK-based Zopa.com simply pulled out of the United States citing regulatory difficulties.

????So it is good news for all lending sites that California has given Prosper its blessing. Commissioner of Corporations Preston DuFauchard calls the site an example of "the kinds of innovative ideas that can help get credit in the hands of people who need it while instilling in our financial markets desperately needed openness and transparency."

????Prosper's relaunched version will have slightly new rules. Borrowers will have to have credit scores above 640 to request a loan now, for example. And the site is introducing a secondary market that allows lending institutions to put any loan up for sale and allow people or institutions to bid on it. Larsen calls this an easy, transparent way to give institutional lenders the liquidity to start lending again, and hopes it will help thaw the credit market.

????California's approval may also offer an important signal to the SEC, which won't comment on its ongoing investigation of Prosper, helping Prosper to resolve its matter more quickly with the regulatory body. Then again, with Wall Street's troubles, the SEC might not get to a tiny tech startup anytime soon.