- Jefferies and Lending Club dipping toes in the securitization water to test bringing back to the markets the securitization that started the Lending Club Odyssey. In a context where SoFi and Marlette are getting a lot of attention and bond rates are falling, going to market with a scrubbed clean portfolio, with very high yield, under everybody’s twice increased scrutiny may be good all around: for the sellers , the dealers and the buyers.
- Kabbage launches the 100% mobile SME credit application. I strongly believe that mobile platforms are stronger for applications : use the camera to send documents, use the metadata for underwriting and fraud detection, etc. However one shouldn’t have to type more than 10 fields on mobile, and even those should be really short. This is also a great step towards enabling Kabbage to enter developing countries where mobile is the main technology for SMEs.
- A very interesting analysis of Lending Club’s secondary market. Absolutely worth the read.
- A quick survey of the SME credit market , from banks, to fintechs via the small business administration. The article claims that there is more capital available to SMEs now than before the ’08 crisis !
- Creditexchange raises $500k, part of it from Kuber Financial.
- A slightly obvious, but perhaps interesting to new market entrants, on how the underwriting process of Funding Circle works.
- And as explained above , Marlette’s securitization, rated by Kroll, is active in the market.
- Lendix launches an ELTIF (a new brand of fund cross-border, non-bank structure the EU has created !) for €50-75m. Lendix has €2.4m of turnover, €240k of operating profit and employs 11 people.
- An article on an interesting subject, how did Funding Knight fail. The article, however, falls short of facts and the complete story. A subject I would like to learn more about and publish more about.
- Finance industry expects Bank of England to cut rate in August by 0.25% . When will the rate become – (minus!) 10% ? Perhaps time to take some bets.
- A must read. And yes, AFRICA ! Zidisha in 2009 , disbursed a first loan to a Masai nomad in a remote part of Kenya, over a day’s journey from any bank but that had access to the Internet and to the mobile phone money transfer service we use to send loan payments. Smartphones and the internet penetrate much faster virgin markets when they don’t have to fight with existing infrastructure to displace it. Our readers should look at how fast p2p took off in China. I expect that once p2p takes off in real developing countries it will grow even faster than it did in China, although with smaller markets and similar fraud risks. Many people also forget the invaluable GOODWILL the p2p lending industry benefited from when it was just p2p. Goodwill is worth billions of dollars in advertising.
- United States
- Jefferies, LendingClub Said to Eye Revival of Scuttled Bond Sale, (Bloomberg), Rated: AAA
- Kabbage Launches Industry’s First Fully-Mobile Application Experience for Small Businesses, (Press Release), Rated: AAA
- Secondary market analysis, ( NSR Invest), Rated: AAA
- Can’t Get a Loan for Your Business? I Don’t Believe it, (Fox Business), Rated: AAA
- CreditexchangeTM Raises Seed Capital from Kuber FinancialTM, (Business Wire), Rated: A
- How the Underwriting Process Works With Funding Circle, (Fundera), Rated: A
- Marlette Funding Trust 2016-1, (Kroll Bond Rating Agency), Rated: A
- European Union
- Lendix launches first ever SME lending fund in ELTIF structure, (Alt Fi), Rated: AAA
- United Kingdom
- Funding Knight Review – The Safety of Peer-to-Peer Lending, (FX News Call), Rated: B
- Industry says August rate cut “inevitable”, (Financial Reporter), Rated: A
- Zidisha: the first global peer-to-peer microlending platform, (Blasting News), Rated: A
- Cibil builds 360 degree view of consumer; what you really must know, (The Financial Express), Rated: A
Jefferies, LendingClub Said to Eye Revival of Scuttled Bond Sale, (Bloomberg), Rated: AAA
Jefferies Group is again considering selling bonds backed by LendingClub Corp. consumer loans, people with knowledge of the matter said, after disclosure issues at the online lender scuttled an effort earlier this year.
Jefferies is having preliminary conversations with investors to gauge interest in the bonds, and may decide not to go ahead with a sale, the people said, asking not to be identified because they aren’t authorized to speak publicly. The firm hasn’t fixed a deal size, but the original offering was expected to be around $150 million, people with knowledge said in April.
Wall Street banks are looking to sell similar bonds tied to loans made by at least two other online lenders in the coming weeks as well, according to a presale report and a person with knowledge of the matter. The offerings are a sign that markets for riskier debt may be thawing as record low bond yields spur investors to hunt for higher returns, while some of the world’s biggest money managers warn that risks are building up across global markets.
Among the other lenders looking to tap the market is Social Finance Inc., one of the biggest online providers of student loan refinancings. It has hired Deutsche Bank AG to underwrite, and may begin marketing a $575 million securitization toward the end of this month, encouraged by strong interest expressed in a similar deal they issued in June, a person with knowledge of the plans said.
Online lender Marlette Funding has hired Goldman Sachs to underwrite a securitization of its own. It could start marketing the notes as early as this week, according to a presale report from Kroll Bond Rating Agency and public disclosures tied to the offering.
Buyers of securities backed by online consumer loans have included DoubleLine Capital, JPMorgan Chase & Co. and BlackRock Inc., according to data compiled by Bloomberg that track ownership disclosures of the securities.
Kabbage Launches Industry’s First Fully-Mobile Application Experience for Small Businesses, (Press Release), Rated: AAA
Kabbage, the financial services data and technology platform, today announced that it has launched a powerful new iOS app for iPhone® and iPad® that allows businesses to complete the entire application process in a few simple steps. The app features drivers’ license recognition, instant mobile check verification, and Apple’s Touch ID™ fingerprint authentication to deliver the best-in-class user experience and reduce the friction usually required to access business capital.
The company now drives $7 million per month in originations from mobile devices and nearly 64,000 monthly user interactions on the app.
Secondary market analysis, ( NSR Invest), Rated: AAA
What loans are available on the secondary market?
We analyzed the current listings on Folio between June 22-27, 2016. The following are averages across the available listings:
Note Size: $35
Interest rate: 16.71%
Yield to Maturity: 15.39%
Loan Age: 11.17 months
Borrower FICO Score at Origination: 686
Days listed on Folio: 4
Remaining Payments: 39
83% of loans have never been late on payments
89% are current on payments
Even split between FICO scores trending up/down
Interestingly, while the average stated interest rate on Folio is 16.71%, the average is only 13.15% (non-weighted average rate) for the entire Lending Club index of loans. This indicates that investors who sell notes on the secondary market are generally listing notes with lower credit grades as compared to the index distribution of loans.
What about loans that are listed almost immediately after origination?
Loans that are listed within three months after origination (aka “fast flips,” because these notes are bought and quickly listed for sale) have a significantly higher markup compared to all loans listed. These fast flips have an average markup of 5.86%, while the entire sample is only 2.18% (only current loans included).
What dictates markup/discount of a loan on the secondary market?
From the data we analyzed, the greatest correlation with the markup/discount of a note is whether or not the borrower has ever made a late payment – about 40% of note pricing was explained by this metric alone. Other variables with positive correlation to the markup/discount are credit score trend, interest rate, and ask price (higher principal value is correlated with higher markup). A negative correlation was found with attributes such as Inquiries in the last six months, number of remaining payments, days since last payment, and outstanding principal.
Can’t Get a Loan for Your Business? I Don’t Believe it, (Fox Business), Rated: AAA
I don’t hear any complaints about getting financing. And there’s a reason for that. The financing environment for small businesses in 2016 is not just good: It’s great. In fact, it’s better than it was before the Great Recession.
Yes, venture capital and angel investing have both recently slowed.
For the established small businesses who reside in industrial parks and office complexes around the country and distribute pipes, manufacture film, mow lawns, fix roofs and serve meals – the financing environment is strong. When they want loans to grow their companies they have plenty of options today.
Don’t believe me? Then why, as Forbes recently reportedOpens a New Window., is Wells Fargo (which releases earnings this week along with other banking giants Citigroup and JP Morgan) calling on those small business applicants that it previously rejected for loans?
Big banks are lending more: According to monthly index prepared by Biz2CreditOpens a New Window., a marketplace for online lending, small business loan approval rates at big banks ($10 billion+ in assets) is now at an all-time high. Big banks this year are approving loans at a 6% higher rate than last, and the approval rating has increased seven of the last nine months. The most recentOpens a New Window. Private Capital Access (PCA) Index by Dun & Bradstreet and Pepperdine University Graziadio School of Business and Management found that small business access to capital has steadily risen over the past four years. In January, Citigroup said itOpens a New Window. lent more than $10 billion to U.S. small businesses in 2015, which was 120 percent more than it loaned in 2009. Wells Fargo has set a 5-year, $100 billion lending goal with a new loan programOpens a New Window.announced earlier this year. PNC Financial Services Group recently announced that it is extendingOpens a New Window. its popular consumer loan programs to now include small businesses.
Alternative lenders are filling in the gaps that big banks can’t serve. The online lending industry has exploded over the past few years, led by firms like CAN Capital, Kabbage, Lending Club and others. PayPal and Square are providing merchant advances for working capital to their customers who qualify based on their cash flow. And other big companies are jumping in: Office supply giant Staples has partnered with Lendio to offer lower cost loansOpens a New Window. to small businesses. American Express recently announcedOpens a New Window. a planned partnership with Lendio. Chase and alternative lender OnDeck Capital just formedOpens a New Window. an alliance. Kabbage just partneredOpens a New Window. with Scotiabank to provide loans to businesses in Canada and Mexico.
The Small Business Administration is booming. According to this reportOpens a New Window. from the Small Business Finance Institute, 2015 was a good year for bankers offering SBA backed financing, particularly the most common 7(a) loans. “SBA lending overall results, as measured by the agency’s monthly approval statistics, finished FY 2015 with better results in every category, but especially rich for 7(a) guaranteed lenders. The 7(a) program “shattered all previous Total SBA Loan Volume 2015 records for total loan volume, and even for the number of loans greater than $150,000. It’s 504 debenture volume also “grew for the first time since 2012, hopefully signaling that declining years are behind the program.”
Of course, the news is not all rosy. It never is. The PCA survey above also found that small businesses’ access to traditional bank loans, while increasing, still lags behind that of middle market companies, which means that many small businesses still rely on personal assets and personal credit for financing.
So please, don’t tell me that you can’t get a loan for your small business. You can. I understand if it may be too expensive because lenders believe that your business is a riskier investment. However, that’s your choice. Be grateful that you have one.
CreditexchangeTM Raises Seed Capital from Kuber FinancialTM, (Business Wire), Rated: A
Creditexchange, India’s first hybrid digital consumer loans platform and institutional marketplace, has announced that it has raised an undisclosed amount of funding from Kuber Financial as part of its $500,000 seed round.
Creditexchange is building a digital loan origination business which it intends to support with a marketplace for institutional investors through which they can co-invest in portfolios of loans originated by Creditexchange. The hybrid model allows Creditexchange to overcome the issues faced by existing Indian peer-to-peer and marketplace lending models, mainly with regard to turn-around-times and opaqueness around regulation.
Creditexchange had previously announced a strategic technology partnership at LendIt San Francisco 2016 with LendFoundry, a market-leading platform which is trusted by large online marketplace lenders in North America, to develop a best-in-class platform customized for the Indian market.
Kuber Financial is a global FinTech holding company that invests in analytics and technology driven financial services start-ups. It is founded by Timothy Li, an established figure in the US FinTech space where he has been an advisor to start-ups like Kabbage, Rocket Loans, Blinker etc. besides being the ex-CIO of Realty Mogul, ex-CRO of Quick Bridge Funding and ex-GM of consumer lending at Loan Depot. The advisory board of Kuber is made up of Jim Redmond (Advisor to Funding Circle), Eric Bunting (early investor of Kabbage and Funding Circle), Jason Raneses (Software Architect at Credit Karma) and Amy Wan (ex-General Counsel of Patch of Land).
How the Underwriting Process Works With Funding Circle, (Fundera), Rated: A
Soon after you hit the submit button to send your completed online application, you’ll get a call from an account manager. This personal contact will not only help guide you through the process but will serve as an intermediary between you and the underwriter, according to Account Manager Natalie Roberts.
The account manager is charged with the task of getting to know more about your company’s present needs as well as your growth plans for the future. They’ll discuss your loan application with your assigned underwriter, who’s hard at work reviewing your credit report and other financial data.
To that end, if the underwriter is missing information from you or would like to discuss something about your business in more detail, you might get a direct call from them. “It depends on how the process is going,” says Roberts.
If you do receive a phone call, it will usually last about 15 to 20 minutes, depending on the size and complexity of your business and loan application.
You should be prepared to tell your story and answer the following questions:
- Why did you start your company?
- What opportunities and challenges do you face?
- How do you derive revenue?
- How will this loan help your business grow?
- How do you plan to repay the loan?
What Else Does the Underwriter Look For?
This relates to any type of assets or property that might secure your loan.
Funding Circle will examine how much capital you’ve invested in your own business.
In a nutshell, your capacity is your ability to pay back your loan.
This relates to any situation that may affect your funding.
Your character gives Funding Circle a general view of your trustworthiness and stability. For example, the underwriting team may want more information on how much experience you have in your industry and whether you have historically made payments on time. An underwriter might also take a look at your social media feeds and read any of your company’s reviews on sites like Yelp. Positive customer reviews and comments go a long way.
Because Funding Circle is in the game to help fuel your growth, if you’re looking for a loan as a lifeline, this will be a red flag. Funding Circle will see this if your company has taken on a large amount of new debt in the past 9 months with no real reason to explain this.
Marlette Funding Trust 2016-1, (Kroll Bond Rating Agency), Rated: A
Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of notes issued by Marlette Funding Trust 2016-1 (“MFT 2016-1”), a $184.90 million consumer loan ABS transaction that is expected to close on July 28, 2016. This transaction represents the second securitization collateralized by unsecured consumer loans originated by Cross River Bank, under the Marlette Best Egg Platform and sold to Marlette Funding, LLC (“Marlette”) or its affiliate.
Founded in 2013 in Wilmington DE, Marlette operates an online marketplace lending platform, operating under the Best Egg brand (www.mybestegg.com). Approximately $250-$275 million of loans are originated to prime customers through the platform per quarter. As of May 31, 2016, the Company has $1.47 billion of loans under management.
Lendix launches first ever SME lending fund in ELTIF structure, (Alt Fi), Rated: AAA
Recent European Union regulation created the ELTIF, a new brand of fund available for retail and professional investors that is designed to stimulate cross-border, non-bank investment across the EU.
The Paris-based SME lending platform has launched the first European Long Term Investment fund (ELTIF) dedicated to SMEs. The French stock market regulator, the Autorité des Marchés Financiers (AMF), gave the go ahead to Lendix to take advantage of the ELTIF format following its launch. It is called the Lendix SME Loans fund II.
The fund will be between €50-75m in size and is currently backed by several larger institutional investors including CNP Assurances, ZencapAM (OFI Group) and the fund ‘Prêtons Ensemble’ managed by Eiffel Investment Group and sponsored by Aviva France and AG2R La Mondiale.
Lendix allows SMEs to borrow €30k to €1.5m over periods ranging from 3 to 84 months to finance their development and expansion. The average loan size is €250k.
“It’s under the radar of all existing debt funds, so it’s a new asset class for investors. Lendix strengthens its objective to serve both private investors selecting their loans directly on the marketplace and institutional investors investing through the fund,” he said.
Funding Knight Review – The Safety of Peer-to-Peer Lending, (FX News Call), Rated: B
Comment: A better article on how Funding Knight failed would really be useful for the industry. If you would like to write it Lending Times would love publishing it.
In the wake of emerging peer-to-peer websites, many of those who were saving with Funding Knight had lost hope of getting back their money. Claims indicated that the company was running out of cash, causing its fall into administration. This caused panic to more than 900 savers, but nevertheless, a recent Funding Knight review has given them a new dawn given the rescue of the firm by GLI Finance, an investment firm.
Industry says August rate cut “inevitable”, (Financial Reporter), Rated: A
Following the news that the Bank of England’s MPC voted to maintain Bank Rate at 0.5%, the financial services industry says that the Committee has made its intention to cut rates in the near future clear, and widely expects a rate cut of 0.25% next month.
Zidisha: the first global peer-to-peer microlending platform, (Blasting News), Rated: A
Lenders anywhere in the world can visit our website and browse loan proposals written directly by disadvantaged entrepreneurs in developing countries. Each lender can lend as little as a dollar to help crowd-fund a loan project. We send the funds directly to the borrower, and as the borrower repays, we return the funds to lenders. Lenders can either withdraw the repayments, or use them to fund new loans. This is a high-impact way to do philanthropy because the funds keep being recycled into new loans; $50 put into a Zidisha loan fund generates on average $750 worth of loans in five years! Lenders can also dialogue directly with the borrowers.
In 2006, I was volunteering in Senegal, Africa, raising microloans for women in rural villages through Kiva.
When I returned to the United States, we registered a local microfinance organization and hired a loan officer to manage the loans and to liaise with Kiva on the villagers’ behalf. Though we tried to be frugal, this ended up being expensive due to administrative costs. To be sustainable, we would have to charge the women more than 30 percent interest, almost enough to leave them poorer than they were before taking the loans! This is the story of microfinance in general: the world’s poorest people are paying the highest interest rates – the global average is 35 percent, but rates of 80 percent – 100 percent are not uncommon.
Eliminating the intermediary bank allowed us to reduce the cost of each loan to just 5 percent. In 2009, we disbursed our first loan to a Masai nomad in a remote part of Kenya, over a day’s journey from any bank but that had access to the Internet and to the mobile phone money transfer service we use to send loan payments. We named the organization “Zidisha,” which is Swahili for “grow,” as in an investment, business or quality-like prosperity. We now have more than 55,000 members in 157 countries and have raised loans for more than 28,000 small businesses around the world.
We’d like to be able to fund everyone who applies and also expand to offerlending services in more developing countries. If we can help people improve their quality of life, then building Zidisha is time well spent.
Cibil builds 360 degree view of consumer; what you really must know, (The Financial Express), Rated: A
As lending by microfinance institutions (MFIs) was never higher, it is no surprise that the country’s premier credit information company (CIC), CIBIL, has decided to get into this segment as well. In an interaction with FE, its chief operating officer Harshala Chandorkar speaks about challenges involved and how it is a win-win situation for MFIs, banks and borrowers.
Is the profiling and the data that you have acquired for MFI borrowers any different from that of borrowers from banks? Does the fact that most of the MFI lending tends to happen to joint liability groups (JLGs) a challenge?
The data points remain the same. Most MFI borrowers have a voter ID and an Aadhaar number. The challenge, however, arises when it comes to other aspects. Names tend to be very common in small villages. Addresses are not as strong and differentiated as that in metros.
With the Reserve Bank of India (RBI) deciding to bring peer-to-peer (P2P) lending platforms under its purview, do you expect a change in the way individual’s credit appraisals are done, particularly given that such platforms are probably going to entirely bypass institutions like yours?
I think it will be beneficial for everyone if all the lending via P2P platforms is reported to credit information bureaus as it will help even P2P lenders to take informed decisions when they decide to lend to an individual. Secondly, the non availability of P2P credit information to banks might make borrowers over leveraged.