Author Topic: Do loans for business purposes always get very high rates?  (Read 10190 times)

rawraw

  • Hero Member
  • *****
  • Posts: 2795
    • View Profile
Re: Do loans for business purposes always get very high rates?
« Reply #15 on: May 31, 2013, 04:01:57 AM »
I would bet money it's a Webbank decision and not an LC decision.  But who knows, maybe LC is trying to price business risk appropriately since it wasn't before.

Lloigor

  • Newbie
  • *
  • Posts: 43
    • View Profile
Re: Do loans for business purposes always get very high rates?
« Reply #16 on: May 31, 2013, 01:50:20 PM »
Not to mention, once word got out, that would be the end of that.  All it would take is one post on one board and you'd be seeing the information passed around everywhere.  These dirty desperate borrowers have much more time on their hands thinking of ways to game the system than we have time to think of how to best profit from their misery.  They are like convicts in a cell spending 24 hours a day thinking of ways to get out.

I'm not so sure that the average borrower is that sophisticated.  A large portion of loans are for multiples of $5,000.  A loan for $30,000 carries a higher rate than a loan for $29,975 (This is true for most of the steps between $20k and $35k).  While I do see amounts like that occasionally, I find it far more common to see the round numbers.

Peter

  • Administrator
  • Hero Member
  • *****
  • Posts: 759
    • View Profile
    • Lend Academy
    • Email
Re: Do loans for business purposes always get very high rates?
« Reply #17 on: June 01, 2013, 08:14:50 AM »
There were 291 A1-A4 "business" loans issued in 2012.  So far in 2013, ZERO.  That has to be more than Voodoo.  They changed something here, but what it is, I'm not exactly sure.  I would love to see someone with A1 credit reapply for a business loan.  Either they'd get a higher rate, or they'd be the only person in 2013 to break the A4-business barrier.

My understanding is that loan purpose is taken into consideration and the data suggests that is definitely the case. I remember hearing a comment from one of the lead underwriters that the big changes made late last year included taking into account borrower "self-reported data" which included loan purpose. Makes sense because small business loans have been the worst performing category by far. Although these days borrowers don't really need to worry with every loan being snapped up very quickly.
Publisher of the Lend Academy blog

See my returns here: http://www.lendacademy.com/returns

AmCap

  • Full Member
  • ***
  • Posts: 248
    • View Profile
    • Email
Re: Do loans for business purposes always get very high rates?
« Reply #18 on: June 01, 2013, 11:21:32 AM »
There were 291 A1-A4 "business" loans issued in 2012.  So far in 2013, ZERO.  That has to be more than Voodoo.  They changed something here, but what it is, I'm not exactly sure.  I would love to see someone with A1 credit reapply for a business loan.  Either they'd get a higher rate, or they'd be the only person in 2013 to break the A4-business barrier.

My understanding is that loan purpose is taken into consideration and the data suggests that is definitely the case. I remember hearing a comment from one of the lead underwriters that the big changes made late last year included taking into account borrower "self-reported data" which included loan purpose. Makes sense because small business loans have been the worst performing category by far. Although these days borrowers don't really need to worry with every loan being snapped up very quickly.

I trust that's true Peter, but it seems odd.  LC has stated that the one thing they *never* verify is whether the borrower uses the funds for the stated purpose.  If it got out that you could get a lower interest rate by simply lying, then the stated loan purposes would quickly become meaningless...

Zach

  • Administrator
  • Hero Member
  • *****
  • Posts: 622
    • View Profile
    • Email
Re: Do loans for business purposes always get very high rates?
« Reply #19 on: June 01, 2013, 11:25:24 AM »
There were 291 A1-A4 "business" loans issued in 2012.  So far in 2013, ZERO.  That has to be more than Voodoo.  They changed something here, but what it is, I'm not exactly sure.  I would love to see someone with A1 credit reapply for a business loan.  Either they'd get a higher rate, or they'd be the only person in 2013 to break the A4-business barrier.

My understanding is that loan purpose is taken into consideration and the data suggests that is definitely the case. I remember hearing a comment from one of the lead underwriters that the big changes made late last year included taking into account borrower "self-reported data" which included loan purpose. Makes sense because small business loans have been the worst performing category by far. Although these days borrowers don't really need to worry with every loan being snapped up very quickly.

I trust that's true Peter, but it seems odd.  LC has stated that the one thing they *never* verify is whether the borrower uses the funds for the stated purpose.  If it got out that you could get a lower interest rate by simply lying, then the stated loan purposes would quickly become meaningless...

+1

I had the same thought on this too. Unless they've somehow magically figured out more often than not borrowers are truthful about the purpose of their loans?

AmCap

  • Full Member
  • ***
  • Posts: 248
    • View Profile
    • Email
Re: Do loans for business purposes always get very high rates?
« Reply #20 on: June 01, 2013, 11:30:52 AM »
There were 291 A1-A4 "business" loans issued in 2012.  So far in 2013, ZERO.  That has to be more than Voodoo.  They changed something here, but what it is, I'm not exactly sure.  I would love to see someone with A1 credit reapply for a business loan.  Either they'd get a higher rate, or they'd be the only person in 2013 to break the A4-business barrier.

My understanding is that loan purpose is taken into consideration and the data suggests that is definitely the case. I remember hearing a comment from one of the lead underwriters that the big changes made late last year included taking into account borrower "self-reported data" which included loan purpose. Makes sense because small business loans have been the worst performing category by far. Although these days borrowers don't really need to worry with every loan being snapped up very quickly.

I trust that's true Peter, but it seems odd.  LC has stated that the one thing they *never* verify is whether the borrower uses the funds for the stated purpose.  If it got out that you could get a lower interest rate by simply lying, then the stated loan purposes would quickly become meaningless...

+1

I had the same thought on this too. Unless they've somehow magically figured out more often than not borrowers are truthful about the purpose of their loans?

It's common in secured lending to have a lot of borrower covenants, but even if you did that I don't see how there's be any recourse as the borrower has likely spent the borrowed funds by the time the servicer figures out that "debt consolidation" loan went to open up Ida's flower shop...

Peter

  • Administrator
  • Hero Member
  • *****
  • Posts: 759
    • View Profile
    • Lend Academy
    • Email
Re: Do loans for business purposes always get very high rates?
« Reply #21 on: June 01, 2013, 11:48:33 AM »
I agree there is no recourse if the borrower uses their fund for alternate purposes. You may remember that LC used to be completely transparent on how they set interest rates with a page explaining the exact method. With their last update they removed that page and it is a "proprietary method".

There are two things to keep in mind here. One, few borrowers do enough due diligence to notice a change before taking out a loan. Two, Lending Club are going to be creating a separate small business lending operation where they will likely funnel these borrowers in the future.
Publisher of the Lend Academy blog

See my returns here: http://www.lendacademy.com/returns

Fred

  • Hero Member
  • *****
  • Posts: 1421
    • View Profile
Re: Do loans for business purposes always get very high rates?
« Reply #22 on: June 01, 2013, 12:03:24 PM »
You may remember that LC used to be completely transparent on how they set interest rates with a page explaining the exact method. With their last update they removed that page and it is a "proprietary method".

We can go to the SEC website and find older versions of LC's filings to get more insights.

http://www.lendacademy.com/forum/index.php?topic=1150.msg7798#msg7798
« Last Edit: June 01, 2013, 12:07:19 PM by Fred »