LendingPoint And The Consumer/SMB Overlap

In the online lending space, innovation is crucial, with the ability to cater to demand for small loans with haste and with a mandate to make it easier for borrowers to access the funds they need when they need it.

The rise of the 1099 worker may also be blurring the lines between personal loans and business loans, making it all the more imperative that consumers can cover the costs of daily life and their own business paths.

LendingPoint, as an alternative online lender, offers personal loans to borrowers with lower credit scores than might be accepted elsewhere, within a credit score range of 600–700. The firm, operating in the U.S. across more than a dozen states, has extended more than $100 million in loans through its two short years since launching.

In a sign of further expansion, the firm said earlier in the month that it had hired the former head of small business finance from American Express, Houman Motaharian, newly installed as chief revenue officer, to bring expertise to bear on data and lending technologies, with insight from both B2C and B2B payments.

In an interview with PYMNTS, both Tom Burnside, CEO of the firm, and Motaharian stated that the ultimate strategy for the firm will be to, as Burnside put it, “remain focused on the segment that is the 600–700 FICO score” and on consumer lending.

Even with that continued focus, said Motaharian, there is indeed some overlap between consumer lending and what is actually (and perhaps unofficially) a form of business lending. Motaharian stated that both he and Burnside have deep experience in SMB lending and, as such, recognize that, as Burnside said, “in reality, there is overlap between the consumer and SMB lending space,” where loans extended to the individual are, in fact, being extended to a 1099 or contract worker, perhaps as much as one-third of the time when putting loans in place. That means, in essence, that the loan is being used to help support business activities. The overlap between consumer and SMB lending, said Burnside, is one where, for the latter, “there is a unique story … Small business owners are willing to let personal credit suffer to keep their firm alive” but need to be able to tap into short-term loans to keep things operating and with several avenues of interaction available, including mobile devices.

While the focus for LendingPoint may be on the consumer, said Motaharian, technology can help streamline the process itself so that the direct lending continuum becomes a smoother one, moving beyond the aggregator model seen with other platforms and bringing individuals together with small businesses. Both LendingPoint executives stressed that next-generation lending initiatives will move toward linking borrowers with services they need, such as contractors, with an eye on homeowners finding the services and financing they would need to complete home repairs or additions, with the potential to interact with as many as 70,000 contractors across the country.

Burnside also stated that there also is potential in setting up similar arrangements with the wedding services industry (having already partnered with David’s Bridal for loans for wedding dresses), again with an eye on the “point of need for those borrowers in the 600–700 scoring range” — a rather large pool of what the executives maintain is an underserved market of as many as 44 million consumers, no matter what the professional services they may need. In certain cases, consumers may not have the traditional established credit metrics that might be otherwise required for financing (think car loans, student loans or credit cards). Beyond that, said Motaharian, the business model adapted by LendingPoint, as a balance sheet lender, allows the firm to weather downcycles, with cash flow a relative constant for LendingPoint.