Alternative online lenders Flashcards
What are the three main business models of alternative online lenders?
- Online balance sheet lenders
- Peer-to-peer marketplaces
- Lender-agnostic marketplaces
Give an overview of the balance sheet lending model…
Term…rates…size…how they charge?
The lender underwrite the loans themselves.
They are typically short-term loans of less than 9 months, with an average size of $40k.
Typically used for financing working capital and inventory purchases.
Work like a merchant cash advance, with a fixed amount or percent of sales deducted daily from the borrower’s bank account over several months.
What are the three origination channels of “online balance sheet lenders”?
- Direct
- Platform partnership
- Brokers
Explain the direct origination channel.
Mostly marketing techniques aimed at the borrower. Examples include direct mail, online media, and email.
Explain the platform partnership origination channel.
Companies connect with prospective borrowers through customized strategic relationships with third party partners that have access to the small business community.
Explain the broker origination channel.
Companies connect with prospective borrowers by entering into relationships with third party independent brokers that typically offer a variety of financial services to small businesses including commission based business loan brokerage services.
How does OnDeck use the three channels to originate loans.
Direct = 43%
Platform partnerships = 10%
Brokerage = 47%
Explain the P2P lending model.
P2P marketplaces simply connect investors and borrowers.
P2P means that individual investors - most of which are large institutional investors such as hedge funds and investment banks - direct capital to P2P transactional marketplaces, like Lending Club, which then decision loans based on a proprietary credit model.
How do P2P lenders make money?..revenue model…?
Revenue for for P2P comes from:
- Origination fees deducted from loan proceed disbursed to borrowers…
and
- Servicing fees deducted from the principal and interest payments paid to the lender.
What is the main target of P2P lenders? Average credit scores…?
Midprime and/or near-prime borrowers
Some of them are now shifting their focus toward small businesses.
Give an overview of the P2P lending model…
Term…rates…size…how they charge?
Terms are typically longer than those of balance sheet lenders, ranging from three to five years.
They charge fixed interest rates that range between 8% and 24% for loans of up to $250k
Explain the “lender agnostic” marketplace…
These companies seek to create a marketplace in which small business borrowers can compare shop a range of loan products, from term loans and lines of credit to merchant cash advances and factoring products.
What problem do these lender agnostic marketplaces solve?
Search costs
Give an overview of the P2P lending model…
Term…rates…size…how they charge?
They don’t make loans.
Marketplaces earn revenue by charging a small fee on top of the loan if the borrower gets funded and accepts the terms of a loan from its platform. Some also sell small business leads to loan officers.
Examples of lender agnostic marketplaces…
- Fundera
- Lendio
- Biz2Credit
- QuickBooks (Intuit)
