U.S. online lender companies, such as LendingClub Corp, Kabbage Inc, and Avant LLC are, are now practicing double efforts in preparing for what they fear to be the coming of an economic downturn.
With the potential risks of credit losses, liquidity crisis, and more expensive funding costs, many of the lending companies are now conducting different methods, such as assessing loan quality, minimising costs, and securing long-term budgets, to ensure that they’ll come prepared in time of worsening economic conditions.
Ever since the 2008 Great Recession, a lengthy list of peer-to-peer and digital lenders begun to emerge. However, unlike banks, online lenders are more likely to suffer in times of economic recessions, especially since these businesses rely on market funding – a feature that is likely to destabilize once the economy faces stress and complications.
According to a report by Reuters, LendingClub Chief Executive Officer Scott Sanborn stated in a recent interview that the issue of the feared recession does not lie in the question of “if” but rather “when.” Sanborn also noted that the expected downturn is sure to happen less than five years away.
As shown by the intensifying economic indicators and forecasts, several online lending firms are now more cautious than ever about the upcoming recession. As reported by Reuters in March, there is a 25% chance that a recession will occur over the next 12 months in the United States, further worrying the companies and driving them to maximise their security plans and strategies.
If the feared downturn will, indeed, happen, experts say that the event would draw the line between stronger online lenders and the weaker ones.
Right now, more and more lending companies are boosting their efforts to become prepared once the decline hits the industry, which involves cooperating with providers that they trust, gathering million asset-backed securitizations, and seeking credit services with favourable durations.