I got an e-mail yesterday from Lending Club letting me know that the quiet period the company entered a long time ago is officially over. What does that mean? Essentially, they are back open for business. Here’s what the e-mail had to say:
We are delighted to share with you the good news that we have completed our SEC registration and reopened the site to lenders this morning. You can now login to your account and invest by clicking here.
What does this registration mean for you?
- Under the new program, you will now invest in notes that correspond to portions of loans made to borrower members. The notes have stated interest rates ranging from 6.69 percent to 18.63 percent, after a 1 percent service charge is applied.
- By partnering with Foliofn Investments, Inc., a registered broker dealer, Lending Club becomes the first social lending network where you have the option of a Trading Platform to put your notes up for sale in the event you need liquidity before the 36-month term of a note. Any new note (issued after October 12, 2008) can be traded on the Trading Platform. You can also buy notes from other lenders.
What does this mean for Lending Club?
Not much has changed and much has changed. Now when you loan someone money, you are really investing in a note to that person.
The change is now you can trade your notes with other members. Why would you want to do that? I can come up with a few reasons:
- you need the capital you invested back before the maturity date (3 years from when you invested)
- you found another loan that is more attractive to your investment goals
- you decide the loan is riskier than what you are comfortable with and want to sell it before things get bad
It’s a very interesting concept. Reminds me a little bit of Wall Street trading bad mortgages. If you’ve got a bad loan, I might take it from you for pennies on the dollar (but more than a collection agency) in hopes of things turning around. It will be interesting to see how this develops.
What about Prosper?
Strangely enough I got another e-mail this morning at 3:43AM from Prosper (the other big social lending site). The e-mail said they were entering a quiet period to pretty much do the exact same thing that Lending Club has just finished.
I think the timing is a bit odd. Did Prosper keep their program open in hopes of attracting more members while Lending Club was “down”… in hopes that when Prosper entered their quiet period that the large number of members they had attracted in the mean time would stick around for the end of the quiet period?
Or did Prosper stay “open” to provide social lending enthusiasts at least one company to do business with at all times? I just think it is odd that one day Lending Club is open, the next morning Prosper goes quiet.
Wait, are you saying you like social lending?
I’ve been skeptical of social lending in the past. I was given referral money to setup an account right before the quiet period began a while back. I was able to fund two different loans, each at 9.76%. Both of my borrowers are paying back on time and I’ve earned a little bit of interest as well.
I’m sticking with the statements I made in the above link. Peer-to-peer lending is great for the borrower. Uncollateralized debt, much like a credit card, for a lower interest rate than a credit card? Sounds like a great deal. Sure, they can send you to collections… but the individual lenders cannot really go after the individual borrowers.
So I think it is great deal for borrowers, but I am still skeptical on the benefit for lenders. You’ve got to tread carefully in picking a loan. I’ve been lucky thus far, but I’m not jumping in feet first and putting my life savings into the higher interest loans.
How do you feel about social lending? Have you done any borrowing or lending? Do you like the concept?