Grip of Liquidity Crisis Tightens on Lending Club, Prosper

canstockphoto14649271Alternative lenders are looking for, well, alternatives to survive tough times.

Matt Harris of Bain Capital Ventures commented to Bank Innovation last Friday that alternative lenders might need to give up equity or make other concessions in order to secure funding. He was proven correct just days later when Prosper reached out to banks to “explore strategic alternatives, including selling equity in the company,” according to Reuters.

Before the Lending Club scandal broke, Prosper had reached out to banks for around $150 million of capital. The amount sought now is unclear. Prosper is also showing its loan performance metrics to potential investors. In another sign of strain, Prosper has also cut staff and raised rates in recent months. Taken in full, Prosper is facing a liquidity crisis.

Lending Club, still reeling from an internal compliance crisis that led to the ouster of founder and CEO Renaud LaPlanche, is trying a different strategy. The Wall Street Journal reported earlier this month that the company had approached Goldman Sachs for advice on getting access to capital. It is now turning to Citigroup to finance future loans.

But Harris foresaw success, at least for Lending Club, and Doug Lebda, CEO, agrees. Here he is talking with Mad Money’s Jim Cramer on his view of the space. In a conversation with Mad Money’s Jim Cramer this week, Lebda offered a sunny outlook for marketplace lending, and LendingTree, which is said benefits when lenders are struggling for origination, because they bid up Lending Tree listings.

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