• The online lending industry has been growing over the last couple of years at an incredible pace. Whether for business or personal, more loans are originated online than ever before. The industry was basically born out of the financial crisis. At the time banks were subjected to tougher regulations. To make matters worse for those seeking credit, the poor economic environment made banks strongly averse to risk.
    As a result loans in any form became scarce. As the demand grew online lenders stepped in to fill the gap. Although the industry started on the backs of tougher banking regulations and the need for banks to avoid risk, it was actually technology and innovation that was the main contributor to the boom in online lending.
    If the growth trajectory continues there is good reason to believe that online lenders will replace banks as the go-to source for both business loans and personal loans.

    Many of the statistics are hard to track in the online lending space because a large portion of the companies are small and private, however, there has been some recent statistics reported by a handful of companies in the public spotlight. According to a report by the California Office of Business Oversight, “Thirteen of the online lending sector’s largest firms made $15.91 billion in U.S. loans in 2014, up 700% from 2010… In the first six months of last year [2015], the same firms extended $12.47 billion in credit nationwide”.

    These numbers represent only a handful of lenders in the industry but it provides insight into the type of growth being realized in the sector. It is important to highlight that online lending consists of both commercial lending as well as personal lending. As for the overall distribution of online loans “Consumer lending accounted for 82% of the total loan volume in 2014 at the companies surveyed, and small-business financing accounted for the remaining 18%”. Based on these statistics there is good reason to believe that online lenders are providing capital to potential banking customers.

  • The main reason for the start of the online lending market is that borrowers needed money and banks were not providing that money. There is a wealth of data to show that U.S. banks had tightened lending to both companies and consumers at the start of 2008, and that trend would continue on for several years. In fact, there is good reason to believe that banks are still not lending to many potential customers. As a result of the financial decisions made by bank officers and institutions over the years, the demand for capital from sources other than banks was established and online lenders continue to take advantage of it.

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