Lender Upstart Will Move Excess Loans From Balance Sheet

FinTech lender Upstart said it will not keep loans on its balance sheet that financial institutions have no interest in purchasing.

As The Wall Street Journal reported Thursday (May 19), the decision by the San Mateo, California-based company reverses its move earlier this year to hang onto those loans.

Upstart offers personal loans using a machine learning (ML)-powered credit scoring model that the company said can identify reliable borrowers with less-than-stellar credit histories.

Chief Financial Officer Sanjay Datta told the Journal the company would likely scale back its lending volume if it begins to notice weak demand for loans from investors, instead of placing loans on its balance sheet temporarily.

Read more: Upstart, Billtrust, Bill.com Drag FinTech IPO Index to New Lows

The report said Upstart has continued using its balance sheet to hold loans in new business lines like auto lending to show investors it can assess credit risk. As of the end of March, the company had about $230 million in auto loans on its books.

Upstart is part of a group of several financial technology companies whose stock price has plummeted recently amid expectations that this year will bring aggressive rate hikes and a rise in late payments on riskier consumer debt.

Last week, its shares fell by 70%, a steep decline after its December 2020 market debut. The company’s price had soared to $400 per share as recently as seven months ago, but it has since dropped to the low $30 range.

Although co-founder and CEO Dave Girouard told analysts earlier this month that the company had just concluded its seventh consecutive profitable quarter and fourth straight quarter of triple-digit year-on-year revenue growth, the company’s reduced guidance for the current quarter and full-year had investors looking to move their money elsewhere.

See also: Upstart Signals Turbulence for AI-Driven Lending Models, and Lower FICO Score Borrowers

“It’s become apparent that 2022 is shaping up to be a challenging one for the economy and for the financial services industry in particular,” Girouard said, adding how apparent it has become that the Federal Reserve will have to aggressively act to control inflation.