Yet Another Record Month for Lending Club

The numbers are in for April and it was another great month for Lending Club and Prosper. For Lending Club it was another record month, with $17.5 million in new loans issued. The last day of the month provided the usual bump with just over $4 million in new loans issued on April 29. This is the fourth time in five months that Lending Club has had a record month and the growth rate seems to be accelerating as you can see in the chart below.

Lending Club Chart of Growth from Jan 2010 to April 2011

For Prosper the news was also very good. They broke $5 million in new loans for the first time since they reopened in July 2009 after their SEC imposed quiet period. They are maintaining their rapid growth curve that really began after they changed their lending model in December. In just three months Prosper has increased their loan volume more than 50%, as you can see from the steepening of the black three month rolling average curve in the chart below.

Prosper P2P Lending Growth Chart from Jan 2010 to April 2011

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C. Jensen
Apr. 30, 2011 10:16 am

This is great to see. My biggest fear with P2P lending is that the platform itself would go belly up.

Do you have any idea how much business Prosper and Lending Club have to do in order to break even? I thought it was in the neighborhood of 50,000,000/month, but I don’t remember where that number came from.

Dan B
Dan B
Apr. 30, 2011 7:39 pm

I have no doubt that Lending Club will be doing over $25 million by years end but I’m thinking the break even number is over $40 million monthly or $0.5 billion annually.

Aaron
Aaron
May. 1, 2011 11:22 am

, If those numbers are true, then with ~4% origination fees and the 1% borrower repayment fee, Lending club will need around $18-20 million in revenues to get the $30MM break even. Is that right? It seems a bit high to me for a company that is exclusively online. Than again, I have no idea of what Lending Club’s expenses are. I’ll quickly take a look.

With Dan’s numbers it would be around $25 million in revenues.

……………..

I just took a look at LC’s Prospectus for Jan. 7, 2011. It states that Lending Club has 51 full time employees. That would make $400,000 in revenues for each employee. Nice.

On page II-95 of their prospectus it says that their SEC legal and acounting expenses amount to just short of $4 mil per year. I also looked up LC’s operating expenses on their Form 10-K for FY 2010 which ended in March ’10. It states on page 51 that Lending Club’s operation expenses are just above $11 mil. Assuming a generous 5% increase on both expenses, that would amount to just short of $16 million in revenues this year to break even. What is that in loans per month? That would amount to roughly $26 mil in new originations per month. Peter’s numbers are appear to be fairly accurate.

Totally possible by the end of the year at this rate of increase. We will see if they can keep it up.

Dan B
Dan B
May. 1, 2011 11:40 am

@Aaron……..I don’t believe the origination fees “average” 4%. The last time I checked 4% was at the top of a 2-4% scale, so I’m assuming that 3% would be a better figure to work the numbers with.

Aaron
Aaron
May. 1, 2011 1:42 pm

@Dan, They must have raised their fees.

https://www.lendingclub.com/public/borrower-rates-and-fees.action

It says there that the origination fees range from 2-5%, but you have to be in the A grade to get 2-3%. 36 mo Bs get 4% and everyone else gets 5%.

With this in mind I figured that 4% was a fairly conservative estimate.

Dan B
Dan B
May. 1, 2011 3:10 pm

@Aaron……….Yeah, these rates are definitely higher than the ones I recall seeing. So yes, clearly what you say makes perfect sense.

Bilgefisher
May. 2, 2011 9:31 am

Interesting responses. Seems Prosper will be years away from profitability unless their upward trend grows significantly. That said, Peter alluded awhile ago that institutional investors jumping into the fray. That could quickly raise the amount funded and increase the p2p validity to a larger audience. The next 6 months results should be very telling.

Dan B
Dan B
May. 2, 2011 10:26 am

I’ve only been following Prosper for a few months but it seems like there’s a real divergence in terms of the type of borrower that LC & Prosper are getting. The average loan amounts appear to be widening between the 2. Obviously it’s at least partly due to the recent increase to $35k max amount on loans at LC but does anyone know if this has been an ongoing trend going back into the past?

Dan B
Dan B
May. 2, 2011 11:39 am

I think that ultimately it’s a matter of whether there’s light at the end of the tunnel. With LC we can all see that light, I think. With Prosper I’m not sure. I must admit that I was surprised as to how quickly their loan numbers recovered after the change in format back in December 2010. Now let’s see if they can get new money in the door quickly as well.

Still…………outside of the blogs, I’ve yet to speak to anyone who has ever heard of Lending Club or Prosper as an investment or a place to get a loan. Partially that’s a comment on the people I associate with outside of the blogs 🙂 ……………but there’s probably a lot of work to be done on publicizing as well.

Aaron
Aaron
May. 2, 2011 12:59 pm

, Yeah, I was using FY 2010’s 10-K data. I took a look at to 10-Q that you posted and found the major flaw in the numbers. You are right about the sales and marketing being the major factor. When I used the 10-K data, I had accounted for a 5% increase in all operating expenses across the board. I was pretty close according to the 10-Q data in all areas except for the sales/marketing/customer service category. I really did not expect it to MORE THAN DOUBLE. If they get this cost down, then we may see profitability soon. If they continue to spend on this at the current (as of Dec ’10) rate, we may need to wait another year.

@Dan, To tell you the truth, I don’t know anyone else who knows about these sites either. I’ve mentioned it a few times as an investment vehicle, but unfortunately I find it hard to recommend a loan servicer that takes 4% right off the top on a loan when you can get a 9% unsecured loan without ANY fees at any local credit union. As to your question, Prosper has been getting much more $$$ per loan they service. This has been going on since they kicked their auction model last December. This has been happening mainly due to there being more money waiting for invesetment on the site than creditworthy borrowers. You can see that trend on Peter’s chart above.

Mike
Mike
May. 2, 2011 1:33 pm

Getting back to the issue of P2P name recognition, apparently some borrowers using Lending Club aren’t even aware of them. I remember seeing more than one listing that thanked Lending Tree for the opportunity to borrow. From my perspective, P2P lending is well below the radar screen of the average investor/borrower. Regarding the long term viability of these companies, much will depend on the overall interest-rate environment and stock market returns, and the emergence of a true picture of default rates as the loans mature.

Dan B
Dan B
May. 2, 2011 4:50 pm

If Prosper does indeed have more investors than borrowers these days then I’m curious as to the reasoning behind the 3-4% featured listing bonus that they seem to be running every other weekend.

Dave R
Dave R
May. 18, 2011 3:02 pm

I am a new Lending Club investor (12-2010) and just discovered your blog site. I have been interviewing financial advisers on peer to peer lending and I do not believe peer to peer lending will ever truly be promoted from this sector. They tend to snicker and tell me to take care playing my little money game. I will be looking further for an adviser. I consider this a satellite investment and will enjoy my little money game. I enjoy reading your comments about this business. Thanks.

Yosef Katz
Jul. 19, 2011 9:59 am

Hi, I have been investing with LC for a bit over 8 months now. At this time I have over 600 loans total. My main problem now is how to manage cash flow in the investment, logically. If this investment is growing by, say, 9% (I think it is doing a bit better), and if I were to pull out 20% of profit/month I am not sure where I would put that cash at this point. If I keep reinvesting in LC the cash flow keeps growing…but to what end. Should I target a specific cash flow with a specific return and pull out a percentage above that and use it for living expenses…any thoughts?