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Lending Club Update

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While I was asleep at the wheel on Friday, Lending Club came through with an update on their quiet period. When we last left them, I declared Lending Club is Dead. I admit that I was going for a sensational headline, but I still maintain that I wasn't irrational. When a start-up company says that it is A) Unable to take new business, B) Unable to talk about why it can't new business, and C) Unable to give a time-line for when business with resume, you have to wonder.

On Friday we learned that Lending Club Filed For SEC Registration. I didn't see a hint of how long something typically waits to get through the SEC, so I'm going to be really conservative and go with a ballpark estimate of 14 years. (Again I'm being ridiculous, but with the last of information, that's what I'm reduced to.)

I really like Lending Club - my loans are for the most part current. I say "for the most part" because I don't want to jinx anything. It's a little like how you don't mention the no hitter when a pitcher hasn't given up a hit for the first 7 innings. My portfolio at Lending Club is doing better than it was at Prosper. In fairness I took too much risk with Prosper, so by the time Lending Club came around, I was a good deal smarter about my loans.

Let's hope that the SEC puts a rush on things to keep the industry moving. Without competition (Loanio, Loanio, come out wherever you are, the P2P lending space has been boring.

Last updated on July 29, 2011.

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8 Responses to “Lending Club Update”

  1. Scott says:

    I’m looking forward to watching your lending club progress. I’ve been using prosper and have one default out of 10 loans and it cost me $47. I’m holding off putting new money to work at Prosper until my current loans are paid off. I also got aggressive and bid on several C and D rated loans.

  2. Thanks for the update! I am looking forward to joining once they are back in business.

  3. Laura says:

    No, I think you got it right the first time – LendingClub is dead.

    Read the “Risk factors” section of the S-1 filing closely:

    P. 16: “We face a contingent liability for potential securities law violations in respect of loans sold to our lender members from May 2007 until April 7, 2008.”

    Translation: We may have been breaking the law for the approximately 11 months that we were actively in business (pre-quiet period).

    P. 17: “We have relied on our credit facilities with third parties, such as Silicon Valley Bank (SVB), Gold Hill Venture Lending 03, LP (Gold Hill), and other lenders to borrow funds which we used to participate in the platform as a lender to partially address the shortfall between borrower member loan requests and lender member purchase commitments. We expect these shortfalls to continue for the foreseeable future, and our ability to obtain funds to help address this shortfall may be subject to broader developments in the credit markets, which are currently experiencing a general tightening.”

    Translation: We (the company) have been borrowing money to make loans on the site because we can’t get enough lenders to participate (later they go on to say that they have funded $7M of the $15M in loans funded to date). This may not be a viable long-term business model, especially since people may stop fronting us the money to do this in the future.

    P. 18: “We have incurred net losses in the past and we expect to incur net losses in the future. As of March 31, 2008, our accumulated deficit was $7.8 million.”

    Translation: We have burned through more than half of the $12.3 million we’ve raised, and we’re not sure that anyone will give us more money.

    P. 19: “We have incurred substantial senior secured indebtedness under bank credit facilities with SVB and Gold Hill and other notes issued to other investors… We are in violation of certain covenants under our SVB and Gold Hill facilities… Although the continuing existence of these covenant violations constitutes events of default under the facilities, we entered into forbearance agreements with SVB and Gold Hill in June 2008, under which they agreed to forbear from exercising their rights against us with respect to these events of default through September 15, 2008.”

    Translation: We are now in default on the money that we borrowed to finance the loans that we made to our customers. Our banks have given us until mid-September to pay up, but…

    P 19: … because our obligations to SVB, Gold Hill and other investors are secured, collectively, with a first priority lien against such assets, we may have difficulty obtaining additional debt financing from another lender or obtaining new debt financing on terms favorable to us, because a new lender may have to be willing to be subordinate to SVB, Gold Hill and other investors.

    Translation: Our banks have us by the balls, and anyone else who we raise money from will also be had by their balls by our banks. This may make it difficult to raise more money.

    P. 26: “On June 6, 2008, our independent registered public accounting firm issued a letter to the Company informing us that, as of March 31, 2007 and 2008, respectively, the Company did not maintain effective controls over the corporate financial reporting process due to an insufficient complement of personnel with a level of accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with the Company’s corporate financial reporting requirements.”

    Translation: All of the above should come as no surprise because we didn’t have the right accounting folks in the first place.

    So LendingClub is actually the lender on nearly half the loans funded to date, is in default to its lenders on the money it borrowed to make those loans, and has about 3 months to raise a new round before the banks come and seize all of their assets.

    The SEC would be irresponsible in its duties if it approved this filing. Even if it did, LendingClub wouldn’t be around to issue the securities.

    LendingClub is dead.

  4. Lazy Man says:

    Good research here Laura. I guessed as much except for the part of it being in default to it’s lenders. That’s a really, really short term loan they have.

    I go the opposite direction with the SEC being irresponsible if they approved it. If they don’t approve it, everyone already invested loses their money and a promising international business phenomenon might be squashed in the US.

    It’s kind of like the mortgage crisis where if a few start foreclosing it ruins the value of everything around it. Maybe the SEC doesn’t care.

  5. Jim Bruene says:

    I’m with Lazy Man…sure there are enormous risk factors mentioned in the s-1, that’s the nature of the beast. I remember when I tried to talk my parents into investing in the Starbucks IPO and I made the mistake of sending them the s-1, and after reading all the reasons why Starbucks might not survive, they didn’t invest.

    While P2P lending is not as addictive as coffee, the SEC has no business getting in the way of Lending Club….LC’s investors and creditors understand the risks, let the markets decide whether this is a good business model or not.

  6. Anonymous says:

    As of yet I have not got into the per 2 per lending networks. While they seem like a good idea I prefer investing in boring old stocks, bonds ect. In the past I have contemplated putting a few hundred or so into prosper just to see how it goes. However, I cant getover why people would borrow from one of those sites – THey must have major credit issues.

  7. Lazy Man says:

    Anonymous, it’s simply easier. I have tremendous credit, 792 according to Credit Karma. I would use P2P lending because I don’t have to leave my home. By reducing the overhead of bankers, I would likely get a better rate as well.

  8. Brendan says:

    I was curious what the default rate of Lending Club were. I have been investing in Prosper. A summary out of 18 loans made 1 note was paid in full 6 are current 1 is late and 10 have defaulted. Prosper due to SEC fillings will no longer be available in the state in which I reside. That leaves other sites. Lending Club was the one I was looking at. However they may get shut down here as well.

    I am not sure what the punishment for borrowers is when they default on these peer-to-peer loans. I do not think they should be able to get off scotts free. All and all an interesting idea of cutting out the middle men. But at what cost?

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