Your guide to peer to peer lending

Lending Club is Running at Break Even Today

by Peter Renton on June 20, 2011

Last week I spent a couple of days in San Francisco meeting with the management teams at Lending Club and Prosper. Both companies now (Lending Club moved from Redwood City last month) have beautiful offices in the financial district in downtown San Francisco. I had very fruitful discussions and found out some interesting information, some of which I will be sharing on the blog this week.

I sat down with Renaud Laplanche, CEO of Lending Club, for an hour last week. One of my first questions to him was about the finances of Lending Club. While they have been doing much better lately I know there has been talk on this blog and in other places that they are still a long way from break even. Laplanche painted a different picture.

Over $1 Million in Monthly Revenue

He said that revenue had just topped $1 million a month and that “operationally” Lending Club was at break even. He elaborated by saying that if Lending Club had to operate without any new cash other than cash generated from operations then they could. But in reality they are not running at break even because they are still investing for the future.

Laplanche said that Lending Club is still investing heavily in technology, marketing, as well as people as they build out a team that can take them to the next level. While they are trying to be prudent with their money, it was clear that Laplanche and the team are not under much pressure to quickly move to profitability.

Their 2010 Financials Releasing Soon

Lending Club’s financials for their fiscal year ending March 31, 2011 will be out in the next few days. Although it will probably not be as revealing as we might think because of the rapid growth in the last couple of months. In March Lending Club’s new loan volume was $16.5 million but just two months later the volume was up to $18.5 million. Clearly their revenue number is a moving target so their financial picture is changing all the time.

So, for those people eagerly awaiting Lending Club’s Form 10-K, you will likely see some improvement on 2010′s finances. But when you are digging into the numbers it will appear that break even is still not imminent. And apparently that is all part of the plan.

Goal of $1 Billion in P2P Loans

Lending Club’s goal is by December 31st, 2012 to be at $1 billion in total new loans. Right now they are at close to $300 million, so this means that in the next 18 months Lending Club will need to originate $700 million in new loans, around $39 million a month on average. That is more than double the level they did last month but if the growth curve continues as it has been it should be possible, although certainly it will be a stretch.

I think from the investor side this is achievable as more institutional investors come on board and the word keeps spreading for individual investors. The challenge as I see it will be with borrowers. Currently they come in one at a time and these people often don’t become repeat customers. Laplanche is fully aware of this challenge but without giving any details he indicated that there were big opportunities for growth there as well.

While it is true that a company is not really at break even until it shows in their financials, I was pleasantly surprised to find out that Lending Club is a lot closer to this milestone than I originally thought. The next 18 months will be exciting times for Lending Club and peer to peer lending.

{ 7 comments… read them below or add one }

Brian B June 20, 2011 at 5:30 pm

Did expansion into new states come up in the discussion at all? Things like ‘which specific rules/regulations prevent access to some states?’, ‘how can these be overcome (applications, exemptions, new legislation, etc)?’ and ‘what have you done to gain access, and when will you take the next step (what is that next step)?’.

The best question though is probably – ‘is gaining access to investors in new states even worth the trouble’? I have a feeling that since they already have NY, CA, and IL the answer to this question is ‘no’ (though they would never admit it).

Peter Renton June 20, 2011 at 9:55 pm

@Brian, You have preempted a blog post that I will publish later this week. I sat down with Lending Club’s general counsel during my visit and discussed this very question. Stay tuned.

Moe June 22, 2011 at 3:45 am

Peter, I’m suprised you didn’t mention this realy concerning news that I saw. On June 1 the State Of Massachusetts ordered Lending Club to cease operations in MA. In addition they ordered Lending Club to return to borrowers from MA all origination fees over $20 per year… and also imposed on LC “investigation fees” of over $20,000. I looked at the LC statistics and I see they have issued about 10 mil in loans in MA that’s a loss of at least $300,000.

See: http://www.mass.gov/&pageID=ocaterminal&L=6&L0=Home&L1=Business&L2=Banking+Industry+Services&L3=Banking+Legal+Resources&L4=Enforcement+Actions&L5=2011+Enforcement+Actions&sid=Eoca&b=terminalcontent&f=dob_lendingclub06012011&csid=Eoca

Brian B June 22, 2011 at 5:13 am

they must cease “small loan” operations. not all operations. As a result, your loss factors are overestimated by a factor of 10.

http://www.p2plendingnews.com/2011/06/lending-club-ordered-to-cease-operations-in-massachusetts/

Peter Renton June 22, 2011 at 9:00 am

@Moe, I didn’t cover this story because I thought it was overblown. What MA did was make it illegal for Lending Club to issue loans of less than $6,000 to their residents. When I looked at the total this represented less than 1% of loans and around 0.3% of loan volume (under $1 million) on the platform. Not a big loss by any means.

It is unfortunate for MA borrowers, they may come to Lending Club now for a $4,000 loan but be told they have to make it over $6,000. Prosper does not operate in MA.

I will be mentioning this issue briefly in an article I am working on about the states.

Moe June 22, 2011 at 2:04 pm

Ah I didn’t notice that it’s only for loans under $6,000, that’s not so bad.. Since when is Prosper not lending in MA? I see in lendingstats 5 mil in loans there.

Peter Renton June 22, 2011 at 2:32 pm

@Moe, I misspoke above. Prosper does not operate for lenders in MA but it is open for borrowers. Thanks for catching this.

Leave a Comment

Notify me of followup comments via e-mail. You can also subscribe without commenting.

{ 2 trackbacks }

Previous post:

Next post: