Don’t Count Loanio Out; Files S-1 with SEC

Loanio, the little P2P lending company that could, has filed an S-1 with the U.S. Securities and Exchange Commission to offer $50 million in peer-to-peer loans through their web site at Loanio.com. As Loanio makes clear in the email that announced their filing, the registration statement relating to the securities has been filed but has not yet become effective.

This 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 Lending Club, however, who had originated millions in loans and had the opportunity to test their platforms and raise money before submitting to the will of the SEC, Loanio has had a tough row to hoe. According to the S-1, Loanio was formed in April 2007 and eventually launched on October 1, 2008, only to be shut down eight weeks later on November 25.

The S-1 itself is very similar to those filed by other peer lenders. In fact, the diagram explaining the flow of money is common among all 4 U.S. P2P lending companies:

Among the unique details of Loanio’s proposal:

• Borrowers can pay $35 for “Platinum verification”, in which Loanio will manually verify their identity, address, employment, and finances in an effort to improve their chances with lenders.
• Loanio also allows borrowers to specify a co-borrower (essentially a co-signer) on their loan. For certain low credit grades, a co-borrower is required.
• Borrowers (or their co-borrower) must have a minimum Experian VantageScore of  604.
• Borrowers can request loans with terms of 12, 24, 36, 48, or 60 months.
• Origination fees are 3% for single borrower loans, or 4% with a co-borrower.
• A borrower may choose to receive a loan if at least 35% of the loan is funded by lenders.
• Lenders may bid as little as $20 per loan (down from $50 previously).
• Loanio has not yet lined up a national lending partner (like WebBank for Lending Club and Prosper), or a broker dealer to administer a secondary market (like Folio Investing for Lending Club).

An interesting disclosure about the company funding loans a la Lending Club appears on page 10:

Q: Does Loanio participate on the platform as a lender member?

A: Yes. From time to time, Loanio, Inc. may act as a lender member on the platform to provide additional funding for the borrower loans. In order to avoid any conflicts of interest that may arise due to the fact that the Company has access to information not available to the general population of lender members, Loanio will not participate in the bidding process in any way. Instead, after the bidding period for a loan request expires and the interest rate has been determined through the auction process, Loanio may at its discretion fund part or all of the difference between the funding commitments made by lender members and the total value of the loan request. As a result, Loanio’s participation on the lending platform will not impact the auction bidding process or the setting of the interest rate on the Notes or the corresponding borrower loans.

You have to give Loanio founder/CEO Michael Solomon credit (no pun intended) for sticking it out this long. According to the filing, during the eight weeks that it was active, Loanio site issued 7 loans for a total of $14,358. For comparison, during their first two months in operation, Lending Club issued $1,365,350 in loans (Sep 13 – Nov 13, 2007), and Prosper issued $1,859,398 in loans (Feb 6 – Apr 6, 2006).

Not only has Solomon stuck it out for over two years, but according to the filing, he has bankrolled the entire operation on his own: about $250k from inception through Q1 2009. Aside from the 41 year-old Solomon, Loanio’s only other full-time employee is Todd Walters, 27, who is listed as the acting CFO. All of Loanio’s engineering, marketing, and legal work is outsourced.

Loanio’s S-1 is relatively short and straightforward. Perhaps with IOU Central and Prosper still entangled in details, the SEC will throw Loanio a bone and approve their registration? It’s only for $50 million – one tenth of  Prosper’s request, and a fifth of IOU Central’s. Hopefully the small amount and Solomon’s tenacity will pay off in the end.

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