There are a number of ways to earn supplemental income. Many of them are obvious things, like working part-time or starting a side business. You might also consider monetizing a web site or starting an income portfolio. One of the more interesting, and increasingly popular, ways to earn a return through passive income is by lending money to others.

 

P2P Lending

 

In the past few years, peer-to-peer lending (P2P lending) has grown in popularity. In these programs, you use an intermediary who helps you connect to those who want to borrow money. You can lend money, in increments as low as $25, to those who are looking for a loan. The site figures out your share of the principal and interest when the borrower makes a payment.

P2P lending sites include those like Lending Club and Prosper that can help you help those who are looking for car loans and debt consolidation loans – and maybe even a business startup loan. You can also use microlending sites like Kiva to help third-world entrepreneurs get loans with competitive interest rates to create a better life. And, P2P lending sites like TutionU let you connect with college students.

 

The main idea is that you help others reach their goals, and you get a return, since you receive regular payments. If you build up a portfolio of P2P loans, you can create an income stream. Indeed, some of these sites, like Lending Club, even offer retirement accounts on P2P loans. The options are becoming increasingly varied.

 

Crowdsourcing

 

You can also help business startups in the U.S. Kiva recently started a business microloan program in America, and you can also make use of other crowdsourcing web sites to help you help entrepreneurs. Some of the sites that are known for crowdsourcing include GrowVC, 33needs and Kickstarter. There are also charity-based crowdsourcing sites for non-profits, including Microplace.

 

Understand the Risks

 

Lending money to others is a good way to help someone else, while seeing a return. However, it is important to understand that this is an investment that comes with risks. The person that you lend money to may default. If that happens, all you end up with is what has been paid so far. You could lose money.

 

You can reduce your risk by choosing to lend money to people with good credit. Most of the P2P lending sites include a credit profile on the lenders. You can get a better return if the person has poor credit, but you accept a bigger risk of loss. Choosing someone with A or B credit can mean that you are less likely to see a default.

 

However, even with careful vetting, you could still see losses. My Lending Club portfolio is almost entirely comprised of borrowers with A and B credit. On a whim, I added a single E credit loan. Interestingly, two of my A credit borrowers defaulted. But my E credit loan is still current. You can never tell exactly what will happen.

 

In the end, lending to others is a viable option for cultivating alternative income. Just make sure you understand the risks, and that you don’t invest money you can’t afford to lose.