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Gary Richardson, 40, needs to borrow $25,000 to buy more inventory for his online eyewear business. He could try a credit card or a bank loan. But instead, the Locust Grove, Arkansas, business owner is borrowing the money through Prosper.com, a new online person-to-person lending site.

Launched in February, San Francisco-based Prosper offers loans up to $25,000 at a range of interest rates. After three months of operation, Prosper has more than 500 loan applicants seeking funds on any given day. Prosper CEO Chris Larsen isn't releasing loan statistics yet, but he believes his site's eBay-style model of connecting individual lenders with borrowers has huge potential. He's not the only one who thinks so--Zopa.com, a similar United Kingdom-based lending site, plans to enter the U.S. market this year.

Prosper verifies loan applicants' information, runs a credit check and assigns a credit rating. And there's no chance a late payment will cause an interest-rate hike--payments are automatically deducted from borrowers' bank accounts. Deadbeats beware, though: The company turns nonpayers over to collection agencies.

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Most Prosper borrowers and lenders belong to affinity groups. The groups are rated on their payment history, so group leaders encourage members to keep up with their payments. Group ratings make it easier for borrowers to get lower-interest loans.

Jupiter Research analyst Asaf Buchner in New York City says he expects the group dynamic to help make Prosper a success and has become a group leader himself. "It's a fascinating experiment."

After scoring a $1,000 loan that funded in two weeks, Richardson plans to go back to Prosper for more. His site, www.gogglesandglasses.com, sells about 15,000 sets of eyewear a year.