If you’re an active lender/borrower in the P2P community such as myself, the recent news (seen below) on LendClub’s site may strike as a shocking new development.

“Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios, and withdraw available funds without changes.

Until the registration process is completed, the company will undergo a quiet period and will not be able to respond to press and other inquiries about Lending Club or the registration process during that time.”

I called customer support and got a call back from Lending Club. They assured me this is a normal process and no, they are not in trouble. I certainly hope that once all regulatory hurdles have been completed, things will be back to normal.

In the meantime, growth has been the focal point of LC and they are beginning to deliver. Let’s take a look at the statistical breakdown from May 24, 2007 to April 4, 2008:

“Surpassing the $15 million mark in issued loans last week was an important milestone for our company. As netbanker reported, LendingClub has the largest volume in the quality loans segment in the P2P lending space (FICO>640, DTI<30%, no dqs)" – Rob G., LendingClub

ABC News Covers P2P Lending Success Story:
Tim Murphy needed $25,000 in capital to open a store in Marietta, Ga. with the mission to sell popcorn. He ended up going to about 15 banks, filling out one application after another. People like Mr. Murphy with good credit are being turned down by these smug bankers — the climax of lending inefficency. P2P lending sites such as LendingClub and Prosper are quickly closing the gap. Click Here to read more on the story…

I’ll keep my ear to wall and report on any further developments over at LendingClub HQ as the news trickles in…

The first thing I had to do was verify my identity, social security number (tax purposes), bank account, etc. The process is fairly straight forward and simple. When verifying your bank account it will take a few days. The reason you will want to do this is to have the ability to wirelessly transfer money between your bank account and the account created on Lending Club. It’s a fee free service with the only downside being that it’ll take about four days to see money hit the account on either end. No biggie if you plan out your monetary actions ahead of time.

So, without further adieu, here’s a sneak peak of what my lending experiences has been like so far. After clicking on the lend tab near the top, I was taken to a page that basically resells the lending package and touts its unique security blanket – only allowing prime borrowers with a credit score above 640 to join. You’ll also read something about acquiring better rates, the security of the site, Lending Club’s borrower rating system, and keeping your sensitive personal and financial information secure.

But I was eager to start lending and it was easy enough to locate the “Start Lending” tab to get this show moving along. The very first screen you’ll see have two tabs, one that utilizes LC’s Lending Match technology to help you build a “recommended” portfolio and another tab which allows you to choose the loans individually.

In getting back Lending Match, there is a neat slider that automatically adjusts to the level of risk you’re willing to take. At one end of the scale LC will place you in low risk loans, while at the other end of the scale; you’ll take on more risk for potentially higher returns. You’ll choose the amount of money you’d like to lend and give your portfolio a name.

Now, if you’d like to be more involved in the decision making, like myself, you’ll want to avoid the LendingMatch option and go straight to the “Let Me Choose” tab.

Once there, you’ll be instructed that you must lend a minimum of $25 to participate in the lending process. Click “Browse Loans” to proceed.

Now we’re at the bread and butter of the site – where all the lending magic happens. It’s fairly easy to see that the loans are listed with such detailed features as a title, loan amount, loan rate, connections, the amount of money still needed to fund the loan, and the time left before bidding will end.

There is also a search criteria that you can use to filter which loans meet your specific credit requirements. Beside each credit letter you’ll notice that Lending Club has conveniently provided the average rate for that particular loan grade.

Below that, you’ll have the option to choose how far along in the process each listing is to being funded. You can choose between 75%, 50%, or just have all loans selected. The purpose of this function is to not “waste” the lender’s time with borrower listings that have absolutely no chance of being funded. If I choose a listing that is already 75% funded, I know that the borrower has a good chance of having his or her funding needs become an actual loan.

However, if you choose to go too high, then a really attractive loan may slip through your fingers before you have the chance of bidding on it.

Finally, you’ll click “search” and filter out all listings that meet your criteria. I set my filter to view only listings that are rated either A or B. From here I can sort the list any way I’d prefer to see the data.

The first one on the list was an applicant looking to fund a wedding. Although this is a wonderful and all I am more concerned with whether or not this person will pay me back and remain current with their payment obligations.

In this window, you’ll have access to everything you need to make an educated decision as to whether you’ll make a bid for this loan. Some of the important components of a good loan to me are Debt-to-Income percentage, which banks use and want as low as possible, the borrower’s gross income, delinquencies, revolving line utilization percentage such as a credit card (you’ll want as low as possible as well), etc.

With regards to delinquencies, I tend to take the approach of: If the person doesn’t care enough to pay down their debts, why would they pay me? They aren’t! So, why take the chance that someone will default on you when they really can’t be trusted? Most of the listings I’ve seen appear to have generally good records – but always make sure you check. It’s only your hard earning money at stake. I say this with a sarcastic tone of course.

Also important is the reason that this person is in need of money. Be sure the reason makes sense. If it sounds skeptical and other lenders are not biting – there must be a reason.

So for argument sake, let’s say I want to bid on this loan. All I have to do is go back to the listing screen and check the box to the left of the title. Although it took me some time getting used to, I realized that the process is a little different that the Prosper approach. With Lending Club it works more like a checkout – similar to shopping on Dell or Amazon.

What you’ll need to do is click “Add to Portfolio.” Your portfolio will become updated, informing you that $25 has been applied to the listing. Then click “Review Portfolio.”

In this screen you’ll have the opportunity to either add more bids to this particular portfolio or simply checkout. If I only wanted this one loan I would then checkout and go to the “My Account” tab on the top right.

Now I can see the portfolio I’ve bid created, along with the total expected monthly payment and weighted average rate. If I want to review any of the listing I’ve made within this portfolio, I’ll click on the name I choose for this portfolio. From here, I can see additional statistics. One of the more important stats is the “status” section, which tells me what the percentage completion the listing is currently at. For this bid, I see that it is 88% funded and shouldn’t take long to become an official loan.

Once you begin to build the portfolio up a bit, you can track your loans in the “performance” tab. Here, you’ll see what the payments are to date, the remaining payments, and non-performing loan stats.

Observations
In working with Lending Club, it’s obvious that it will take some time to adjust to the different functionality and view of the site when compared to that of Prosper. Initially, I had some trouble bidding on loans as I did not realize that it was a checkout based lending system.

With Prosper, I’ve set up standing orders to automate the lending for me – so as each loan made pays on principal and interest, those monies will automatically become reinvested when additional loans meet my lending criteria. This system allows for more flexibility in determining which criteria to use when bidding on loans. For the time being, I do not see this on Lending Club.

Prosper also has the portfolio creator option similar to that of Lending Club. I believe these are great tools for the person who would like to have a professionally allocated mix of loans in their portfolio. However, if you want more personal control over your lending, you probably won’t find much use for this feature.

Final Thoughts
Lending Club needs to determine if it is necessary to add the functionality that Prosper has to make the site more complete. Or, does it branch out and offer a whole new peer-to-peer lending approach/experience not currently being offered by Prosper? If so, what is the best way to accomplish this?

In my estimation, there is room for innovation and Lending Club has already differentiated itself in many ways. At this point, I’m not sure that these minor differentiations are good enough for LC to become a power player in the market and steal substantial market share away from Prosper.
The real question is whether or not lenders/borrowers find the site easy to use, offers them plenty of options/functionality, and allows both parties to enter into win-win business relationships with enough access to the information needed to make informed decisions.

Overall, it appears that Lending Club is on the right path — but the line in the sand has been drawn. Prosper probably does a little better at offering users a positive experience. It’s still early in the game and Lending Club is just getting its feet wet, so you can be sure that I’ll stay on board to see what happens down road. I certainly do not want to get caught in Prosper’s camp once Lending Club comes out with their next great lending application.

If you’ve read this far, I’m betting that you are pretty interested in the whole peer-to-peer lending experience. Click here to try it out for yourself and get a free $25 just for signing up!

Good Lending…

Instead, I’m looking to test out Lending Club’s system and determine if there are better deals residing in greener pastures.

So far, my experience with LendingClub has been satisfatory. The sign-up was smooth and I do love the website interface. Currently, I am waiting for bank account verification, but should see some progress within a few short days.

Regardless of the result, I think you’ll find my commentary to be extremely useful and help open your eyes to additional investment opportunities that exist out there.

In the meantime, if you have have or are currently lending/borrowing through LendingClub, please comment and drop us and your fellow readers a line. We’d be more than satisfied to share the experience with you.

I’ll keep you posted…
Stephen