"Twebster302" needed $1,200 for a root canal. "JulesWWC" wanted $13,000 to open a fair-trade chocolate shop. "Needhelp," who said he's a state employee, asked for $1,000 to get his finances in order and help his handicapped brother.

These and other cash-strapped borrowers are part of the financial world's version of Match.com. They're posting personal financial profiles in hopes of connecting online with investors seeking sweeter returns.

Known as peer-to-peer lending – or P2P for short – it's a 4-year-old industry that's flourishing amid the current credit crisis.

"It's a complete 180 in terms of how people look at their debt, but there's no better time for something like this," said Curtis Arnold, author of a book on the burgeoning industry.

The number of Web sites – and participants – has grown in recent months, fueled by struggling borrowers and tight-fisted bankers.

LendingClub.com, a Sunnyvale-based site that hosts only prime borrowers with credit scores above 650, more than doubled its membership, from 82,000 in January to 140,000 in May.

And at least two P2P sites are in the midst of issuing stock, including New York-based Loanio.com, which filed a $50 million initial public offering June 22 with the Securities and Exchange Commission.

For borrowers, P2P lending is a way to get past hesitant bankers or to avoid high-cost loans. For lenders, it's a chance to earn more than a lowly 2 percent on a CD or risk the stock market.

In either case, it's a way to formalize a loan between friends – or even perfect strangers.

Here's how it works: Borrowers attract lenders by posting profiles detailing their financial goals online. They display credit scores, personal tales and even pictures of puppies in hopes of landing a willing lender.

Investors peruse those listings and agree to make loans as small as $25. They earn interest rates of anywhere from 7 percent with the safest borrowers to 20 percent from the riskiest.

Mark Leyes, spokesman with the state Department of Corporations, which licensed the two California-based sites – LendingClub.com and Prosper.com – said P2P sites will likely continue growing, even after the recession lifts.

The sites are "democratizing" lending, he said. But it's not without risks. The Federal Trade Commission, for instance, hasn't evaluated P2P lending.

"We certainly need to understand better how it works and what the risks are to consumers," said Tom Pahl, a director with the FTC's Division of Financial Practices.

Some have already discovered those risks. Fair Oaks resident Chris Abarca started lending small amounts on Prosper.com, then stopped last fall after too many borrowers paid late or defaulted.

"I just didn't want to spend any more dough and have it go sour," Abarca said, who said he loaned as much as $15,000 during his most active period.

Since its inception in 2005, Prosper.com has had about a 20 percent default rate among its 60,000 loans. Prosper stopped accepting new transactions or speaking to the media as it awaits SEC regulatory approval for an initial public offering.

Joanne McNabb, director of the state Office of Information Security and Privacy Protection, said she wouldn't recommend borrowing or lending from a P2P site.

"With a bank, you know they exist somewhere, you know who they are, you know who their regulators are," she said. "In online P2P lending, you don't."

Eric Di Benedetto of Marin County feels otherwise. He is loaning $1 million at LendingClub.com and said he gets double-digit returns.

"I was thinking about retirement funds and considering the high volatility of the stock market," he said. "You need something that will work in the long term."

He said the social networking aspect compels borrowers to pay back because they're borrowing from an individual, not a faceless corporation. And everyone knows when you don't pay it back.

On most P2P sites, there's more money requested than offered by investors, even with twice as many lenders as borrowers. Continued funding could become a problem for the industry, especially once lenders are lured elsewhere when the economy improves, said Jessica Ward, who blogs about P2P lending.

Reynaud Laplanche, LendingClub's CEO, compares P2P's growth to the 1990s launch of stock trading sites like eTrade or Schwab. People were timid to go online for trading but later found it convenient and less costly.

He sees P2P spreading.

"There's no shortage of market, and so competition is not a bad thing at all," he said.

Call The Bee's Sarah Frier, (916) 321-1119.