LendingClub, Prosper Said Planning to Deepen Funding Sources

  • Two largest online lenders said seeking options amid growth
  • Industry has expanded to 163 companies from handful in 2009

The two largest online consumer lenders, LendingClub Corp. and Prosper Marketplace Inc., are planning new forms of funding that could accelerate their lending and deepen their investor bases, according to people familiar with the matter.

LendingClub is in talks to securitize its own loans for the first time, two people said, requesting to not be named because the matter is private. That may involve issuing the securities through its subsidiary LC Advisors, the people said.

The strategy may provide LendingClub with another avenue of cheap funding and easier, direct access to big bond funds, said the people. Investors might also welcome the strategy, especially if the company seeks credit ratings that are required for some fund managers to invest.

Prosper has teamed with Morgan Stanley to offer note obligations, an alternative to buying whole loans, three people with knowledge of the plans said. Morgan Stanley would aggregate borrowers’ loan payments and pass them along to noteholders for a fee.

Industry Growth

Prosper is also preparing to launch a U.K.-based fund that could buy its originations, essentially providing balance sheet at arms’ length, one of the people said.

Representatives of Prosper, LendingClub and Morgan Stanley declined to comment.

Prosper and LendingClub are among the financial startups, known as peer-to-peer or marketplace lenders, that match people seeking consumer or small-business loans with investors such as hedge funds.

The U.S. industry has grown to include as many as 163 companies competing for borrowers, up from just a handful in 2009, according to an IBISWorld research estimate cited by the Federal Deposit Insurance Corporation in a report last week to banking examiners.

Securitizations, which bundle thousands of loan contracts into securities salable to institutional investors, play an instrumental role in facilitating the industry’s growth. As much as $8.2 billion of such securities have been issued since 2013, according to Morgan Stanley data through December.

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