P2P lender, Lending Club, has filed S-1 forms with the SEC indicating its intention to float it shares publicly in what is anticipated to be up to a $500M deal, and is being led by Morgan Stanley, Goldman Sachs and Citigroup. Headquartered in San Francisco, Lending Club is an alternative to banks for private individuals and companies to receive loans, using the firm’s P2P lending platform which matches borrowers and lenders.
For Lending Club, the IPO comes as the firm has processed over $5B in loans on its platform, collecting fees between 1%-6% on the principal of the loan amount. According to its S-1, 2013 loans on the platform increased 188% to $2.1B from 2012. For 2014, figures showed growth continuing to take place at a rapid pace with $1.8B in loans originating during the first half of the year, a 125% increase from the same period last year. The lending growth has amounted to H1 2014 revenues of $86.9M, compared to $37.1M for the same period last year, and $98.0M for all of last year. During 2013, Lending Club reported $7.31M in net income. So far for 2014, despite the increase in revenues, during the first half of the year the firm saw net losses of nearly $16.5M due to a sharp increase of marketing and sales related expenses.
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Like other P2P lenders, within its S-1 prospectus, Lending Club focuses on advantages that its platform provides to borrowers and lenders when compared to banks. Among the benefits stated are a “marketplace model that efficiently connects the supply and demand of capital,” cost benefits of an online operation, and efficiency provided by using an automated process for handling both lending and borrowing.
As a lending marketplace, investors have the ability to filter borrowers by credit rating when deciding who to lend to. Due to global interest rates being at record lows, the P2P marketplace model has provided investors the opportunity to source better returns for their cash than from what is available from banks or from government bonds. As a result, Lending Club and firms like them, have seen a demand from hedge funds with available cash that view the marketplace as a destination for sourcing market beating returns on fixed income investments. This was acknowledged within Lending Club’s list of risk factors, as they stated, “Although we have a wide variety of types of investors, a relatively small number of investors account for a large dollar amount of investment in loans funded through our platform.” As such, were interest rates on more liquid securities such as government and blue-chip bonds to increase, it could affect the pace of funds flowing into the marketplace from larger investors.