LendingClub aims for a sweeter IPO price

LendingClub is expected to set its IPO price today. The amount is already in the $12 to $14 a share range, up from the previously stated $10 to $12.

The company is an interesting cross between a social media site and a financial services business. An online loan marketplace founded in 2007 by CEO and former French securities lawyer Renaud Laplanche, LendingClub matches individuals and businesses with those who are willing to lend money. It's looking to raise as much as $808 million at the top of its current range, of which $700 million would go to the company and the balance to investors and insiders selling their personal shares.

Claiming to be the largest loan marketplace, LendingClub says it has facilitated more than $6.2 billion in loans since its debut. Personal loans can be for as much as $35,000, while business loans are limited to $100,000. And the interest rates on these loans can provide significant savings over the traditional loan market. Investors can put in as little as $25 per loan and build a portfolio of investments of risk-adjusted returns to suit their needs.

LendingClub focuses heavily on technology and methodologies to make credit decisions, with "strict credit criteria" like FICO scores of at least 660 to help protect lenders. The marketplace and platform are also available to other financial services and technology companies to expand the potential reach.

Equally important, LendingClub worked early on to ease concerns of regulators to smooth the way forward, a strategy in contrast to the "ask for forgiveness, not permission" approach that some disruptive-tech companies like Uber have pursued. Uber is currently being sued by Los Angeles and San Francisco, and temporarily prevented from operating in Spain and Thailand, over regulatory issues.

The theory behind LendingClub is that while the economy needs personal and small-business lending, the traditional financial services industry has not adequately met those categories' needs. Instead, it has focused far more on credit cards that have higher underwriting and service costs, which means higher rates for borrowers.

In its October 2014 bank lending practices survey, the Federal Reserve reported that relatively few banks eased lending standards for commercial loans, and a number actually tightened requirements for small businesses. For individuals, standards on some types of mortgages have eased, but other forms of personal loan standards and terms remain unchanged.

LendingClub brought in nearly $144 million in transaction fees in the first nine months of 2014, versus $64 million in the same period last year. The high growth is coming at a price, with spending on engineering and product development running at a pace 2.5 times that of last year and general overhead more than four times higher.

Overall, the company saw a $22.8 million loss for the first nine months of 2014 rather than the $4.5 million profit in the same period last year ($7.3 million profit for all of 2013). The IPO proceeds would give LendingClub the resources to continue pursing growth with profits returning at some point in the future.

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