Lending Club is a peer-to-peer service that enables applicants to sidestep traditional financial institutions to get loans. They were incorporated in 2007, and originally was a Facebook app. In 2008 they had to file with the SEC because the loans made could be considered risky. For a borrower, Lending Club has no risk. You submit an application to borrow money, get accepted, and Lending Club investors commit cash to your loan. Investors will experience risk when investing their cash. The two potential risks are:
- The borrower defaulting
- Lending Club files for bankruptcy
At present filing for chapter 11 is not likely. They are financed by investment capital. The company has received three rounds of investment. In the beginning they received a $2 million in angel capital. The business then obtained a $10 million A round in August of 2007 from Norwest Venture Partners and Canaan Partners. They then got $12 million Series B round, and as of April 2010 $24.5 Million in Series C financing. As of today they have $53 million total in investments.
In 2008 they completed SEC registration. In compliance with the SEC they must also file every three months reports and the reports can be accessed online. At the time of this writing, September 30th, 2010 is their latest quarterly statement. They have $21 million of cash on hand. A little-known fact is many loans are partly financed by themselves. So some of their investment capital is tied up within notes themselves. If they need cash, they could in theory sell their own loans on the secondary market via FolioFN. Also each note they own is generating income. Based to the most up to date 10-Q statement, they own $6 million notes out of a total of $165 million. This implies if they did file for chapter 11 the financiers would most definitely want to keep loans going to make sure they do not loose their entire venture capital.
For anyone who is anxious they go bankrupt, They cover this topic on their web site. According to Lending Club’s frequently asked questions, if whatever reason they go bankrupt or cannot service their loans they have another business that is a successor.