There is a very important development in the world of alternative lending. Peer-to-peer lending or what is now more popularly called “marketplace lending” has hit the big times. In December of this year, two of the biggest players in the US have launched their initial public offering. The IPOs of Lending Club and OnDeck have signaled a new era of non-bank lending.
These companies has been around for over 6 years and since then the market has ballooned in the states. Since 2012, there have been over 100 new entrants in the US in this space. It is very new in Canada and there is only one player at this point.
By looking at the US, we will get an appreciation of what can or is about to happen in Canada. The biggest player is the Lending Club. In 2007, it started as an app on Facebook. The idea was to match people with extra money to lend to borrowers. The core idea of peer-to-peer lending. Removing the bank as the middle man allowed Lending Club to charge a fee for the service and still provide both the lender and the borrower better terms than the banks.
Originally it only offered unsecured personal loans to those with a credit score above 640 with a maximum of $25,000. Now the limit has been raised to $35,000 but the credit score needs to be 660 or higher. This is a new business and it is changing all the time. The key to this business is finding people to lend money. It is easy to find people who want to borrow money; however, if the lender looses their money, the funds will dry up pretty quickly and the business will fail. This is probably why the credit requirement went up.
As the business grew, Lending Club has left Facebook and expanded their offerings. They now offer business loans of up to $300,000 and healthcare and education loans of up to $40,000. Currently they collect 1 – 5% of the loan amounts as origination fee.
As the business continue to grow, they will offer more and more products. This year they facilitated over 3 billion in loans. And with the successful IPO, they will have money to buy smaller lenders and expand even faster. It is only a matter of time before they offer mortgages.
I think this is very exciting development for borrowers especially for the small business owners and individuals looking for unsecured personal loans. Currently, these are very difficult to obtain at banks. This has the possibility of changing the way lending works. Non-bank lending will come to the masses with lower rates and quicker service. Hurrah!
Alternative lending.ca help people with difficult situations get financing and people in good financial situations get better financing through non-bank lenders. We operate out of Vancouver, BC, but can assist people in all of BC and selected locations in Alberta, Manitoba and Saskatchewan.
