Digital lender LendingPoint, which so far has originated more than $1.4 billion in loans to individuals, just got a major boost to build its imprint among a consumer population it considers underserved. On Monday, the five-year-old company closed a $250 million credit facility arranged by Guggenheim Securities. The credit facility has an “accordion feature,” which allows LendingPoint to increase its size to $500 million.
In an interview with Bank Innovation, CEO Tom Burnside said the infusion of credit will help fund the growth of its consumer loan origination platform. It also is a sign that investors are confident in its platform’s ability to predict risk.
“The model is really looking at the ability of the customer to pay back, and it takes a lot more into consideration than a traditional model would,” Burnside said. “We look at cost of living by zip code, and what [customers] need to able to thrive. FICO is a trailing indicator and not a leading indicator of where the customer is going.”
LendingPoint began offering personal loans to customers, with a FICO score in the 580 to 680 range, who had difficulties getting loans from banks. However, with the launch of its point-of-sale loan product earlier this year, the platform can assess customers across the credit spectrum, Burnside explained.
The Kennesaw, Ga.-based company originates unsecured installment loans using its own lender licenses, as well as originating loans for FinWise Bank and First Electronic Bank. Originations are done online and at merchants and service providers that offer point-of-sale lending products. Loan amounts range from $500 to $26,500, with terms from 24 to 51 months.
According to Burnside, LendingPoint envisions its future growth path through a broadening of its target customer base to more high-score borrowers and through “significant growth” in the point-of-sale lending channel. The company expects to more than double the value of loan originations this year, he noted.
Leslie Parrish, senior analyst at Aite Group, said LendingPoint, through the credit facility, will acquire more runway to offer loans through the economic cycle past a downturn. “If there is an economic slowdown, the demand for loans may increase,” she explained. “LendingPoint is trying to ensure they have adequate credit facilities for now and for the future because, if there is a downturn, those credit facilities may dry up.”
For LendingPoint’s part, its strategy to weather an economic slowdown is two-fold: to acquire a deep understanding of customer behavior; and to build as much flexibility into its model as possible. “One of them is trying to better understand the customer prior to going through a recession, and we’ve gone back and bought [customer] data from 2004 through 2011 so that we can predict the beta risk of our customer,” Burnside said. “[Secondly], whatever your margin risk is in a customer, you want to make sure you have enough margin coverage to be able to absorb some level of beta risk.”
Though LendingPoint is part of crowded field of companies serving non-prime borrowers, including Elevate Credit and LendUp, the market — at least for now — can support multiple players, noted Parrish. “About one in five U.S. adults either doesn’t have a traditional credit score or they have a credit score that’s considered below prime,” she said. “It’s a huge market — [a lot of these individuals] have the ability and willingness to repay.” The winners will be those who can offer the most competitive terms and whose underwriting models can most accurately identify the best quality borrowers, she added.