The hot IPO of Lending Club has elevated the focus on the emerging market of nonbank alternative lending.
Among the leaders in this hot market is OnDeck Capital (NYSE:ONDK), which provides an online platform for small-business lending. OnDeck is set to make its initial public offering this week.
OnDeck plans to raise $170 million by offering 10 million shares at 16 to 18. It will list on the NYSE under the ticker ONDK, looking to price late Tuesday and start trading Wednesday. Its investors include Google (NASDAQ:GOOGL) and SAP (NYSE:SAP).
Lending Club (NYSE:LC) and OnDeck are the first two IPOs in the fast-growing field of alternative lending via online platforms. Other companies in this market include Prosper Marketplace, Funding Circle, CAN Capital, Merchant Cash and Capital, and Kabbage.
Lending Club raised $865.5 million in its IPO, pricing 57.7 million shares at 15. The stock rose 56% to 23.43 on its first day of trading on Thursday. The stock closed Monday at 24.97.
"It's a hot market and there's no question Lending Club made it a lot hotter," said Peter Renton, a blogger and founder of the website Lend Academy, which focuses on alternative lending. "Lending is going through a massive transition."
These companies are filling a void partly created by the 2007-08 financial crisis, providing consumers and small-business owners with more options to get loans. Since the financial crisis, banks have avoided relatively small loans for consumers and businesses. Lending Club and Prosper Marketplace specialize in consumer loans. Funding Circle and OnDeck focus on business loans. Lending Club recently branched out into business lending as well.
"There has been a huge decline in banks lending to small business," said Brendan Ross, founder and president of Direct Lending Investments, a private investment firm focused on small-business loans. "The alternative lending space is extremely hot and a threat to banks, which have been slow to react."
Companies in this market have various business models.
Lending Club and Prosper connect borrowers with lenders, a process known as peer-to-peer lending, through their online platforms. They make money on loan origination fees and don't carry the debt.
OnDeck is different. Through its online platform, OnDeck lends money from its own pool of capital accessed through a variety of sources, such as credit facilities provided by banks and institutional sources like Deutsche Bank (NYSE:DB) and Goldman Sachs (NYSE:GS).
OnDeck, in its IPO prospectus, said it is "fundamentally changing how small businesses are evaluated and opening the door to millions of healthy small businesses that have historically been unable to access the credit they need to grow."