LendingClub is shutting down its 5-year-old business lending arm, which was dwarfed by its flagship consumer loan unit, and will refer prospective commercial borrowers to two partner companies.
Under an agreement announced Tuesday, LendingClub will refer businesses with strong credit profiles to Funding Circle, an online lender that caters exclusively to small businesses.
Businesses with weaker credit profiles will be sent to Opportunity Fund, a nonprofit lender that focuses on small commercial customers who might otherwise be denied access to affordable credit. In both cases, LendingClub will receive a fee when a referral results in a loan.
Steve Allocca, president of LendingClub, said in an interview that the San Francisco company is getting out of the business of originating and servicing small-business loans. But LendingClub will perform marketing activities to promote what will effectively be cobranded programs with its two partners, he explained.
Virtually all of the LendingClub employees whose jobs will be eliminated will either be reassigned within the company or hired by Opportunity Fund, Allocca said.
LendingClub CEO Scott Sanborn said that the publicly traded online lender is creating a system where its customers can take advantage of additional services from trusted partners.
“This enables us to both deliver greater value to our applicants and capture a new revenue stream for LendingClub, while further simplifying our business and setting the stage for more partnerships,” Sanborn said in a press release.
LendingClub has been offering small-business loans since 2014. Like many online lenders, the firm saw an opportunity to make inroads by approving loans and delivering funds to borrowers much more quickly than traditional lenders did.
But LendingClub’s small-business unit has failed to achieve anywhere near the scale of the firm’s personal loan business.
In the fourth quarter of last year, small-business loans and certain consumer loan categories combined to account for 7% of the firm’s loan origination volume. Personal loans to consumers made up the remaining 93%.
In 2016, LendingClub
Under the pilot program, Opportunity Fund, of San Jose, Calif., started offering loans to small businesses that had applied online to LendingClub for credit and would have otherwise been rejected.
The pilot program set the stage for the expanded partnership that was announced Tuesday. Opportunity Fund, which currently makes loans to borrowers in 13 states, said that it now sees an opening to expand to 32 more states.
The nonprofit lender plans to deploy $1.2 billion in capital to underserved entrepreneurs by 2023, with roughly 30% of that loan volume coming from online applications. “This partnership is a significant piece of our business,” Opportunity Fund CEO Luz Urrutia said in an interview.
Funding Circle is a U.K-based online lender that has provided more than $2 billion in financing to U.S. small businesses.
“This relationship with LendingClub will play a key role in accelerating our growth, as well as increasing access to affordably priced capital for businesses whose credit needs remain unmet by the traditional financial system,” Bernardo Martinez, U.S. managing director at Funding Circle, said in the press release.
LendingClub, Opportunity Fund and Funding Circle all portray themselves as white-hat actors in an online lending market that has been tarnished by less scrupulous companies.
The three companies are all signatories of the
