LendingClub Proposes New Structure in S-1 Filing
LendingClub has filed an S-1 with the SEC, in which it proposes a new regulatory structure for person to person lending, as well as providing some interesting data about the company itself.
The proposed regulatory structure describes a model in which LendingClub issues loans directly to borrowers, and rather than selling the promissory notes to lenders, sells securities to lenders which are dependent on the repayment of the original loan. It’s a model which may placate the SEC’s need to regulate the sale of notes to investors, and would have some benefits to LendingClub, too. As the owner of the promissory notes to the borrowers, this structure allows Lending Club to fully control collections, including initiating legal proceedings against borrowers and offering settlement packages.
It is an S-1, after all, the same document that companies file when they sell shares of stock as securities (i.e., when they go public), so LendingClub’s filing with the SEC includes some concerning facts about the business as well, specifically:
- LendingClub has been funding loans as a lender on their platform. Unlike Prosper, Zopa, and other P2P lending marketplaces, Lending Club has actually used $7 million of their own money (or, more accurately, borrowed money) to jump-start activity on their site.
- The company has raised an additional $3.6 million in an arrangement where accredited investors have fronted the money as a 3-year loan at 12% interest (that makes LC a B-grade borrower, according to their own underwriting criteria), and will also receive preferred stock at the price of $10 per share.
- Despite the injection of $3.6 million, Lending Club is burning through money at a good clip. During FY2008, the S-1 reports, LendingClub had a net loss of $7.0 million, and an accumulated deficit of $7.8 million since inception.
It’s unclear whether, given their financial situation, LendingClub will be able to hold on through approval from the SEC. Going public is one thing, but creating a brand-new regulatory structure and getting it approved by a large bureaucracy during a lame duck presidency will be tough.
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[...] regulatory filing is similar to the first steps taken by Lending Club, Prosper, and IOU Central. (To date, only Lending Club has been approved.) Unlike Prosper and [...]