I started writing on the Lending Club blog last summer. As my home was in foreclosure and I was preparing to live in my office it was the break I was looking for. It started out just as a writing gig, but the extra money was desperately needed. In fact the day I found out I got the gig, I wrote this post about it being part of a turning point in my whole story.
And this week, with the announcement of Lending Club’s SEC registration, and suspension of new lenders, I was astonished by the lack of basic research that was done by many p2p lending and personal finance blogs.
Many blogs that I highly respect for their tips on saving, investing, frugality, seemed to completely miss the mark on Lending Club’s registration.
I am not a Lending Club employee and what follows is purely my own speculation of what Lending Club is doing based on my personal analysis (keep in mind I was a business finance major in college, and I used to read annual reports for fun).
Lending Club is not going bankrupt
That’s just an absurd notion. Why would they continue to fund loans during this quiet period if they were low on cash? They list 22 employees on their website. They just raised 10.26 million not 8 months ago. From my observations they are not spending outlandishly. Even if they were at a 400K/month (high estimate) burn rate, that still leaves plenty in the bank.
The abrupt stop in allowing new lenders was necessary
Sure, it sucks to wake up to an e-mail that says “no more referral program, no more lenders”. I made $325 just in March from the referral program. But as far as I understand you can’t give advance warnings on this type of stuff. So, yes it was abrupt, but to assure their registration gets approved, the abruptness was essential.
Lending Club will stay a P2P Lender
I would be shocked if they had any intention of moving away from their current model of matching lenders and borrowers. Look at their growth numbers below – why would they stop now?
Referral program will be back
Right before the announcement I was working on a project for Lending Club that involved the referral program. The implementation of this project has been pushed back, but I am still working on it and I would know if the project was canceled. I imagine the referral program will be coming back as soon as the quiet period is over.
Secondary marketplace? Heck yes.
This is the exciting part of this process that many lenders have been hoping for. The establishment of a secondary market within the peer lending community. It is clear that a registration of the p2p loans as securities would allow Lending Club to establish a secondary marketplace. So, if after a year you no longer wanted to hold onto loans in your portfolio, you could resell them to other lenders in the community. It would add liquidity to the marketplace.
Prosper’s S1 Filing is dead
If Prosper’s S1 filing had been successful, to create a secondary marketplace, we would have heard about it by now. I have an e-mail into Prosper following up on their filing, but unless they have some startling news, I think their offering is dead (probably because they didn’t take the steps LC is taking now).
Lending Club is growing
During this quiet period their growth will understandably stall. But if you look at their numbers, they are growing like a weed:
OK, that’s I think about everything I wanted to get off my chest. I hope my insight helps clear a few thing up. They are a good client for me, and I’ve enjoyed getting to know the team over the last 9 months. I’m positive they will be back strong with some exciting stuff once this period is over.
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I’m glad you finally shared your interpretation of things. I agree with you, it *sounds* positive (secondary market and all that), but it’s the abruptness and lack of explanation that bothers me. Maybe there’s no other legal way to do it (which I find difficult to believe), but the manner in which this action has been taken reeks of “we don’t really care about you and therefore we won’t give you more info.”
I’m with CFO, but I think that a time estimate was also needed. It’s just not right to say, to not answer questions and not say when you will answer questions again.
Lending Club should have known the the quiet period was going into affect. They could have easily announced the changes before, let people get their questions answered, and then went into the quiet period.
I don’t think they are having problems except for the fact that the trust is lost with a lot of its customers.
I agree with Lazy Man – Lending Club made a huge error with its community by not communicating what was going on properly – why havent Lending Club got a blog post similar to this up to help assure people about the future of LC? It felt like they were caught out very unexpectedly and that they hadn’t anticipated for any legal problems that might come up.
If they’d announced this even a couple of days before the quiet period, I’d say the reaction would have been alot more postive.
@ CFO – Yeah, I think there was just no other legal way to do it. I’m not a securities lawyer, but I don’t think they could give a “heads up” on this sort of thing.
@ Lazy – Time estimate would have been nice, I think it just might not have been allowed. The trust thing is an issue, but I don’t think major lenders are going to be super upset if they come out of this in a few months with some really disruptive features.
Did some digging up on the whole quiet period thing…
http://www.sec.gov/answers/quiet.htm
“Communications by issuers more than 30 days before filing a registration statement will be permitted so long as they do not reference a securities offering that is the subject of a registration statement.”
So….I think that explains why they couldn’t give a heads up. You just can’t reference a securities offering at all before hand…interesting.
I like your take on the whole affair. I did not think that LC was going broke, that was not my interpretation. I am both a lender and a borrower at LC but I think I interpreted the statements they made like you did so I was not worried.
Update Monday, April 14: I did hear back from a rep at Prosper. Essentially a “no comment, refer to the filling” response. Oh well.
If the Prosper S1 were dead the SEC ruling would be public. It is not.
I am new to P2P lending for profit, and I had just signed up for lending club when the notice went out. I am not bothered at all by this, though. I just hope they don’t change the model. I have been using Kiva for quite a while, and Lending Clubs model seemed very similar, so I hope it remains the same.
Thank you for the information it is very helpful.
Your link (http://www.blog.lendingclub.com) to the LendingClub blog is broken from where I am. Do you think it is a DNS lookup problem or has LendingClub pulled their blog? (Or did you make a mistake in the URL?)
@ HollowOak – Thanks, fixed the link. I used the wrong URL. It’s fine now.