Updated

dock.jpgProsper, the leader in the small but rapidly growing peer-to-peer lending market, has decided to create a $500 million secondary market for these loans.

Currently, you only get money as the borrower pays it back, and can’t withdraw at any time. Enabling secondary trading will allow lenders (or other interested parties) to buy and sell their investments before the term expires. This makes great sense for Prosper: it makes money by charging small transaction fees, and allowing people to engage in many more transactions will just fill its coffers.

The company, which competes with LendingClub and Zopa, has raised a total of $40 million so far, most recently a $20 million round led by DAG Ventures and Meritech Capital Partners.

See our past coverage of Prosper and other players here. Click here for to the SEC Filing.