OnDeck and Lending Club: How they differ

Category: Personal Loans
Published: Friday, 19 December 2014
Written by Admin

OnDeck Capital and Lending Club: Two newly public tech companies that hope to do to banking what Amazon did to publishing. But they differ in important ways.

Let us hit the key distinctions:

Target audience

OnDeck lends to small businesses, using an in-house data analysis tool that generates an OnDeck Score to evaluate the business prospects of the company. Banks usually use little more than the owners personal credit rating. OnDeck specializes in short-term, working capital loans. Lending Club started with personal loans to people consolidating credit card debt, and only recently got into business lending.

How they do it

OnDeck carries most of its loans on its own balance sheet. Lending Club acts a peer-to-peer marketplace, matching up customers with willing lenders and taking a cut.

Source of capital

Literally anybody is allowed to lend money through Lending Club, while OnDecks capital comes from institutions generally.

Financials

OnDeck(NYSE: ONDK) recorded a $14.4 million loss on $107.6 million in revenue in the first nine months of 2014, cutting its losses by 22 percent and growing revenue by 150 percent compared to a year earlier. July-September of this year was OnDecks first profitable quarter, when it cleared $354,000.

Lending Club(NYSE: LC) booked a $23.9 million loss on $143 million in revenue in the first nine months of the year, swinging from a $4.4 million profit on a $64.5 million in revenue.

First-day performance

OnDeck priced its IPO at $20 per share, raising $200 million. After a day of trading, the stock price closed up nearly 40 percent to $27.98, good for a market cap of $1.85 billion.



State lawmakers reject personal loans with a car as collateral

Category: Personal Loans
Published: Thursday, 18 December 2014
Written by Admin

Michigans lawmakers will not approve a new law that could allow people to take out personal loans using their cars as collateral. Some called the concept predatory lending. Some businesses charge more than 270% interest on those loans. State Senate Majority Leader Randy Richardville was in favor of the bill but said it was taken up too late in the session to be considered.



Your Next Loan Shouldn't Be From a Bank

Category: Personal Loans
Published: Thursday, 18 December 2014
Written by Admin
The evolution of marketplace lending

While you could say peer-to-peer lending is as old as mankind, the online incarnation is significantly younger.

"It was born five to six years ago, and 30 or 40 people might fund a loan for one person," says Girouard. The movement was named peer-to-peer lending for the fact it was based on individuals lending money to other individuals.

Today, Girouard says, institutional money is making its way into the industry, hence the shift to the term marketplace lending. In fact, Forbes reports that 80 to 90 percent of the money distributed today by pioneering sites Prosper and Lending Club comes from institutional lenders. In other words, the first peer in "peer-to-peer lending" has been replaced by entities such as large hedge funds.

Despite the change in where the money comes from, the lending sites continue to provide a viable alternative to banks and credit unions when it comes to loans.

The specifics may vary by site, but online applications are typically simple and require only a few minutes to complete. Individuals may receive an instant decision on their approval amount and interest rate. Then, applicants may need to send in documentation such as W-2 forms to confirm their income.

After accepting a loan, individuals may find the money directly deposited to their bank account within hours or less, although some sites could take days to distribute funds. As with bank loans, there may be closing costs or an origination fee to pay.

5 lending sites to consider

Marketplace lenders may provide cash for everything from a dream vacation to debt consolidation. Here are a few of the big names doing business in the industry today:

  • Prosper. Arguably the originator of for-profit peer-to-peer lending in the US, Prosper offers loans from $2,000 to $35,000. As of this writing, interest rates range from 6.73 percent to 35.36 percent. The initial application asks for your address, income, credit score, loan amount and not much else.
  • Lending Club. Another of the early peer-to-peer lending sites, Lending Club also lends in amounts up to $35,000. Current interest rates run from 6.78 percent to 29.99 percent. Its application process is remarkably similar to Prosper, with only basic information needed to get a rate quote.
  • Kabbage. Kabbage is specifically for small businesses and offers lines of credit of up to $100,000. Repayments are made on a six-month term, with fees ranging from 1 percent to 13.5 percent as of this writing.
  • Karrot. Owned by the same company as Kabbage, this website offers personal loans of up to $35,000 with repayment terms of either 36 or 60 months. Currently, you can get rates as low as 6.44 percent. The initial application is similar to Prosper and Lending Club, although Karrot also wants the last four digits of your Social Security number.
  • Upstart. Targeting millennials who may not have the creditworthiness of more established borrowers, Upstart has a more involved application process. While still short, the application asks for information such as where you went to school, when you graduated and what you studied. "We built a model that ... looks at your employability," Girouard said. Loans from $3,000 to $25,000 are offered, with interest rates currently as low as 5.75 percent.


The Death Of Banking: A LendingClub Story

Category: Personal Loans
Published: Thursday, 18 December 2014
Written by Admin

Since 2010, Ive been using LendingClub (NYSE:LC) as a platform to increase my passive income. My wife and I were fortunate enough to participate in the directed share program LC set up for retail investors. With the IPO success on December 11th, everyone is wondering what the future of the company is, as well as the future of the banking industry. With a 56% increase from its IPO pricing, investors might be salivating at the chance to own the leader in Peer-to-Peer lending. LC is up about 70% from its IPO price of $15.

Obviously, Im optimistic about the future of LC, but there are some serious concerns that investors, in both the DSP and potential investors, should be aware of. Before I get into the cons of LC, Ill explain some of the benefits of the IPO, for LC and its investors.

First, LC has been expanding its loan offerings, which is its revenue stream. In 2007, LC opened its platform on Facebook (NASDAQ:FB) only offered unsecured personal loans to those with a credit score of 640 and above, with a maximum of $25,000. Now, LC offers personal loans of up to $35,000 to borrowers with a credit score of 660 or more, business loans of up to $300,000, and after acquiring Springstone Financial LLC. they now offer healthcare and education loans of up to $40,000. Higher loan amounts allow LC to collect more in origination fees, currently 1-5% of loan amounts and is based on the borrowers credit risk. Varied loan products also attracts new borrowers, as LC has the potential to become the go-to platform for those looking to borrow money.

LC has also been diversifying its revenue. In addition to charging loan origination fees, LC has now started charging investors a 1% fee for collecting payments from borrowers. This allows LC to create a monthly cash flow from notes on its platform, and shows investors that they are committed to ensuring that borrowers pay on time. LendingClub has also offered to manage accounts of $2,500 or more, and charge investors for the convenience of a completely passive portfolio. As LCs platform and loan products grow, there will be more opportunities to diversify their income stream.

LendingClub had been banned to investors in 24 states (20 of those states allow investors to use LCs trading platform), and to borrowers in 5 states. However, as a public company, it will now be governed by federal regulations under the SEC, and will be able to operate everywhere. If LC is able to operate in every state, this not only allows them access to more investors/borrowers, LC could significantly change online financial products. Lets consider a home mortgage, the holy grail of the banking industry.

There is one online lending platform that offers accredited investors the opportunity to invest in home mortgages, and thats Social Finance (sofi.com). Sofi also offers student loans and refinancing, MBA loans, mortgage refinancing and of course personal loans. Mortgages are only offered in California, Washington, North Carolina, Pennsylvania, Texas, New Jersey and Washington, DC LC has already stated that the proceeds from its IPO will be used to pay down debt, increase their financial stability, and acquire other financial companies. If LC were to acquire SoFi, they would not only become the largest peer-to-peer lender, but also the largest online home mortgage platform. The ability to offer home mortgages, along with the validation (and media coverage) of their IPO, could significantly change the banking industry as we know it.

Now, the pitfalls. To be blunt to investors, LC is really a facilitator/matchmaker of borrowers and lenders. Increasing demand of investors, while a shrinking supply of borrowers could cause LC to issue larger, risker loans in order increase revenue. This would be the worst-case scenario for borrowers and lenders. Institutions have flooded the platform, which does validate their services, but also makes it a little more difficult for retail investors. LendingClub also had to partner with Web Bank in Utah in order to grow their platform. It appears as if those pesky banks are here to stay.

First nine months of 2014, LC had an EPS of -$0.41. Investors who didnt participate in the IPO of $15 have to seriously ask if they want to own a company with negative earnings, a P/S of 62.03. The real money is in using the LC platform and investing in loans. 84% of investors with less than 100 notes have seen positive returns, while 99.9% of investors with more than 100 notes have had positive returns. Accounts that have been opened for a year to a year and a half have average returns of 8.5%. This type of monthly cash flow is almost unmatched for income investors. Accounts are FDIC insured with Wells Fargo (NYSE:WFC). WFC also profited in the IPO, with 50 million shares now worth over $1.2 billion.

LC data by YCharts

Competition to LC has increased, especially since the SEC has been slow to release the rules on crowd funding in Title III of the JOBS Act. Companies have been positioning themselves in order to take advantage of the SECs ruling. This would flood the market with new investment options, as well as new opportunities for those seeking funds. LendingClubs major competition, besides every bank in the world, is Prosper, a peer-to-peer lending platform that has supported over $2 billion in loan offerings. As investors, both retail and institutional, are given more options for creating ROI, and as borrowers are given more options for financing, LC could see a decline in platform participants. There isnt anything proprietary about offering a platform for loans, so LC must establish itself as THE platform for loans and income investment.

Investors should focus on using the platform for positive returns. An $8.9 billion valuation is pretty steep for a company with negative EPS. Although this my position in LC is very different from my value investment strategy in dividend producing companies, Im focusing more on continuing to reinvest my monthly cash-flow on their platform. To those who profited on the IPO, kudos to us. To investors looking to invest in LC, you should focus on the 8.5% returns on the platform.