LendingClub will stop directly funding business loans and begin funneling prospective business borrowers to partners.
In an announcement today, the lender formally launched a partnership with SMB lender Funding Circle and Opportunity Fund, a nonprofit small business lender.
How it will work: LendingClub will continue to own the user experience and provide loan applications and prequalified offers to SMB prospects. LendingClub will route ‘established, creditworthy’ businesses to Funding Circle for credit analysis and underwriting — Opportunity Fund will address the rest.
What’s happening here: LendingClub is effectively pulling the plug on direct business lending, a business it started five years ago. Business lending never took off like the firm’s consumer products.
Now, the firm sounds like it’s headed back to its roots as a marketplace lender, using partnerships to scale. In 2018, the firm received 14 million loan applications, but funded just a small fraction of them. Opening up the platform to other lenders will provide Lending Club with growth channels and less exposure to credit risk.
“With partners like Opportunity Fund and Funding Circle, we’re creating an ecosystem where LendingClub’s members can take advantage of additional services from trusted providers that can help them generate more savings,” said Scott Sanborn, CEO of LendingClub.
“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 and innovations for Club Members.”
Ecosystems are all the rage: For its part, Funding Circle is also executing on an ecosystem strategy, partnering with banks and with other financial products, like Stripe. This combination of direct lending and working with partners is behind Funding Circle’s performance — the company has loaned more than $2 billion to 12,000 SMBs in the US.
“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,” said Bernardo Martinez, US managing director at Funding Circle.