Briefing

U.S. online lenders reduce risk in the face of potential recession

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Large online lenders like LendingClub, Avant and Kabbage are tightening requirements for providing credit in preparation for a recession. They’re also securing funding in case conditions get worse; in April 2018, Kabbage closed a US$700-million asset-backed securitization from an unnamed small business lending platform. (Reuters)

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Talking point: Canada has a number of peer-to-peer and online lenders for small businesses—including Toronto-based Clearbanc and Lending Loop—that provide loans to companies that want to avoid the equity dilution that comes with venture capital. These lenders often use non-traditional data to evaluate the financial health of companies—Clearbanc, for example, pulls data from Facebook and Stripe to predict revenue growth—but the efficacy of these methods to predict healthy returns  haven’t yet been challenged by a financial crisis. The concerns of these U.S. lenders echo those of Canadian investors, who have already warned against overpaying in a downturn.