By now, just about everyone is aware that experts are predicting job cuts will continue. Anyone who may be a possible victim of the axe knows they’re going to have a tough time meeting expenses on unemployment, so the thought of getting a loan to ease the situation seems like a necessary option.

Naturally, securing a bank loan is out of the question without a job, so people in this situation do what countless others before them have done — they turn to family and friends to lend them some cash. These “loans” are usually informal agreements based on a handshake and the trust that the familial bond will make the loan recipient honor their financial obligation to pay back the money.

Of course, history tells us that this hasn’t always been the case. Now, however, there is a new way to borrow cash from family that takes the worry out of how ethical the borrower is. It’s called the peer-to-peer loan.  Companies are emerging that work with the borrower and the lender to formalize the agreement between the two just as if the borrower had applied for a loan from a bank or credit union.

But borrowing from family and friends isn’t the only approach that peer-to-peer lending companies are taking. In addition to loans between family and friends, there are private loans between strangers, and even student loans. The reason for borrowing is also varied. According to Kim Muhota, CEO of Pertuity Direct, a peer-to-peer lender set to officially launch in January 2009, borrowers can ask for money for debt consolidation, car purchase, home improvement, etc — all of the typical reasons someone would apply for a loan.

Peer-to-peer loans are similar to traditional bank loans in that they carry payments that are due monthly. As with traditional bank loans, late payments are reported to the credit bureaus.

The major difference between a traditional loan and a peer-to-peer loan is that peer loans are typically better priced. That’s because these companies don’t have all of the typical expenses that a traditional lender has, like a brick-and-mortar structure. Peer lenders operate primarily online via their corporate websites. The savings that result from this kind of business model are passed along to the borrower.

Kim noted that not all peer-to-peer lenders operate in the same way: “There are a couple of alternatives in terms of peer-to-peer lenders and they are slightly different in approach. Pertuity Direct has built a model that targets higher quality borrowers — those with 660 minimum credit score, plus other credit requirements. The borrower’s credit information is not shared with the public, and funding occurs much quicker than with other peer-to-peer companies.”

As with traditional lenders, there are a number of regulatory agencies/requirements that impact the peer-to-peer model. On the lender side, all companies have to be registered with the Securities and Exchange Commission (SEC). The reason for this is that a peer lender works with a bank to make a loan to a borrower. Stakes in that loan are sold to lenders in the form of promissory notes. According to the SEC, the promissory notes are investments, which make them subject to the agency’s jurisdiction just as stocks, bonds, etc. are.

On the borrower side, companies can be licensed at the state level or they can partner with a nationally chartered bank.

Just as is the case with a traditional bank loan, a borrower that defaults on a loan will be reported to the credit bureaus. In addition, peer-to-peer lenders use third party collections agencies in an effort to resolve the delinquency.

While “social lending,” as it has begun to be called, shares many similarities with traditional lending, there are some significant differences that are fueling its growing popularity. Peer-to-peer lending not only lets borrowers obtain loans at better prices than traditional alternatives, but it also allows lenders to get a better interest rate on their money. In fact, these features may make the concept of going direct from borrower to lender the wave of the future.