Avant Taps Securitization Market to Fuel Loan Growth
Banks, marketplace lenders and other nonbank lenders were dealt a setback when a federal appeals court declined to reconsider a ruling that has set off alarm bells across the consumer finance industry.August 13
The regulatory path may also be bumpier for P-to-P lenders that focus on subprime borrowers, predicts Raj Date, a former second-in-command at the Consumer Financial Protection Bureau.June 22
The online installment lender Avant has grown rapidly by targeting consumers who can't qualify for a loan from Lending Club or Prosper Marketplace.
Since 2012 the Chicago-based firm has made more than 250,000 loans worth more than $1.5 billion. Avant says that its average borrower earns about $60,000 per year, as compared with about $85,000-$90,000 at its better known peers.
"They're targeting a space that Prosper and Lending Club and others have very clearly decided not to go into," said Alex Johnson, a senior analyst at Mercator Advisory Group. "Just in terms of going where your competitors aren't, I think it's a good strategy."
Now the nonbank lender, formerly known as AvantCredit, hopes to continue its rapid expansion with a new push into the securitization market.
[Coming this November: Marketplace Lending + Investing. Hear how participants in this fast-growth niche are using data and technology to propel lending into the 21st century.]
On Thursday Avant announced its first asset-backed securitization deal, a $139 million private offering led by Jefferies LLC. The company also announced that JPMorgan Chase and Credit Suisse are serving as senior lenders in a new $200 million warehouse lending facility, which will be used to fuel more securitization deals.
"Our plan is to be a repeat issuer, and to really be someone that the securitization market really likes and trusts," Chief Executive Al Goldstein said in an interview.
Avant uses a hybrid business model, putting some newly originated loans on its own balance sheet and enabling outside investors to buy other loans. The securitization deals will be built from loans on Avant's balance sheet.
In late March, Avant announced that it was purchasing ReadyForZero, a website for people looking to consolidate their debts. But in his recent interview, Goldstein said that Avant's customers tend to use their loans less to consolidate existing debt than customers of competitors like Lending Club and Prosper do.
Avant's loans are typically used to pay for home repairs, auto repairs, medical bills and other irregular expenses, he said.
Avant's personal installment loans range from $1,000 to $35,000, and they carry terms from two to five years. Annual percentage rates range from 9.95% to 36%, compared with 5.3% to 28.99% at Lending Club.
Avant issues its loans through WebBank, a $236 million-asset bank in Salt Lake City that many nonbank consumer lenders use in an effort to avoid state interest rate caps.
"Ninety percent of our loans fall under usury caps in states, anyway," he said. "So we actually don't think it's a huge issue."
Nonetheless, Goldstein said that in the wake of the court ruling, Avant is only issuing loans that fall under state usury caps.
The court ruling is binding in only three states, including New York. Avant's website currently advertises a maximum interest rate of 24.99% in New York, well below the 36% maximum in other states where the company operates.
Avant already operates in the United Kingdom, and Goldstein said the company is planning to launch in two new countries before the end of 2015. He declined to name them but said the firm is focusing on developed countries.
The lender, which has raised more than $330 million in equity capital and swelled to more than 700 employees, is also eyeing new product categories.
In that respect Avant is looking to follow the example set by other marketplace lenders, including Social Finance, which first sold student loans and later began cross-selling other financial products to its existing customers.
Goldstein said Avant plans to expand into every major corner of consumer finance mortgages, auto loans, revolving loans and student loans. "Our mission is probably to operate in all of those over the next three to five years," he said.