Lending Club and the Marketplace Model
Some of our investors have observed the funding environment and asked: “Are you going to become a balance sheet lender, just like a regular bank? Has Lending Club’s business model changed?”
Let me be very clear: Lending Club is committed to the marketplace model and we do not plan to become a balance sheet or “hybrid” lender. Our mission of connecting borrowers and investors has not changed.
That said, there may be situations where the temporary use of our balance sheet makes sense. One example would be to enable test programs. Another situation would be to bridge imbalances on the platform. In plain English, this means that if there is a timing mismatch resulting in more borrower demand for loans than available investor capital, we’ll consider investing in and holding the loans with the plan to sell them to investors in short order. Our borrowers expect a great experience, and bridging may occasionally help us deliver it while keeping the marketplace running smoothly.
We have facilitated over $18 billion in loans since our inception with extremely limited use of our balance sheet. For example, at the end of Q2 we had roughly $40 million of loans on our balance sheet or approximately 2% of expected quarterly loan volume.
It is important to note that there are several tools to maintain balance on the platform.
One tool is borrower marketing, as we can dial our efforts up or down. Another is interest rates, which impact both borrower demand and investor supply. In total, the platform has a number of levers at its disposal to adjust to changing market conditions. It is this ability to adapt that is unique to the marketplace model and fundamental to the way the Lending Club platform operates.
What’s most important for investors is this: Lending Club’s limited use of its balance sheet does not impact your Notes.
Thank you for the trust you continue to put in us. We value the relationships we’ve built with you over the years, and welcome your questions and feedback. Please feel free to leave a comment below.