Rush for IPOs Continues with P2P lenders

Investors are in love with P2P lenders. And On Deck Capital is taking advantage by filing to raise up to $150 Million amid strong Investor appetite for the burgeoning sector.

According to On Decks filing statement, The small business lending market is vast and underserved. According to the FDIC, there were $178 billion in business loan balances under $250,000 in the United States in the second quarter of 2014, across 21.7 million loans. Oliver Wyman, a management consulting firm and business unit of Marsh & McLennan, estimates that there is a potential $80 to $120 billion in unmet demand for small business lines of credit.

Hence the first reason investors love the market – potential demand. Since On Deck made their first loan in 2007, they have funded more than $1.7 billion in loans across more than 700 industries in all 50 U.S. states and have recently begun lending in Canada.  The second reason is that these lenders bring technology to the underwriting process. They use Social media and other sources to provide real time input into how customers perceive the financial applicant.

But is this a profitable business? On Deck has suffered losses and may not achieve profitability in the future. In 2012, they last $16.8 million. In 2013, they lost $24.4 million.

The customer repeat business will be an important component of their future performance. In their SEC filing, they provide an example of customers that took their first ever loan from them during the first quarter of 2013, and look at their borrowing and transaction history from that date through September 30, 2014.

The data shows:
• Average number of loans per customer during the measurement period: 2.2
• Average initial loan size: $30,818
• Average repeat loan size: $45,390

It’s a very fascinating document, and one that provides some insight into this growing area.

Source: On Deck SEC filing

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