Today Lending Club’s own Rob Garica (Senior Director of Product Strategy) made a guest appearance on the Barry Moltz Show (episode #63) as well as borrower Matthew Jabs and lender Kevin Palisi. It’s about 30 minutes long and it is a good inside look at the industry and how people are utilizing this new financial tool.

Listen to it and learn from those who are in the trenches!

When making an investment in anything, be it gold, stocks, bonds, Beanie Babies, etc, it’s always good to know why you are investing in such items. What is the personal goal for those funds and that particular investment vehicle? The same is true for peer lending because it is a new kid in school. Peer lending is an age old concept, but has seen the internet bring it into a modern forum for all to use and interact with. Places such as Lending Club provide a friendly harbor to store your precious bounty without hassle.

The basic mechanics behind peer lending is the idea of someone like me lending money to someone like you with stated terms such as time frame for repayment, interest rate, etc; and purposes such as debt consolidation, new car, pet parrot, etc. As a lender, just like with a stock, I can analyze your credit history, employment information and decide if I want to buy into that ‘Talk Like A Pirate” school idea you have (not likely, matey). As a lender I have to do some pretty defined research before deciding to purchase a piece of a loan note (like a stock certificate showing proof of ownership of a piece of the loan, but defines the loan terms like a bond note would).

So what is in it for me? What am I looking for from my investment capital in the peer lending world? Peer lending, specifically focusing on Lending Club as a prime example of the industry gold standard (more Pirate booty is found here) offers several important attributes to me…

Cash flow- Loans repay monthly which offers up to me currently around $140/month in potential cash to pull out for bills, weekend trip, etc. Or I can just reinvest it and watch it cycle into a larger and larger cash cow each month (my plan).

Tradeable- All notes issued now are filed with the SEC as registered securities and are fully tradeable on the secondary marketplace. So if disaster strikes and I need more cash than the cash flow can currently provide, I can bail on a couple of notes (worst case scenario). My experience on the tax side when selling is that I get dinged on any earnings on the note when sold and any mark-up I sell it for (I tend to sell just above the 1% sales fee to attract buyers quickly).

Shoots & Ladders- I can swoop in quickly and buy/sell notes in about a day or two (shoot) and make a profit on the trades or plan a strategy based on interest rates and long term needs for income (ladder). Laddering of notes can be done like CD’s or Bonds which I hope to cover in a later post with some setup tips and strategies.

Low default rate- Right now Lending Club has a low overall marketplace default rate (3.05% as of today). So if I have a large portfolio of notes (100+) I can more or less accurately predict return based upon a larger pool of notes and historical data that is readily available on the Lending Club Statistics page. So if I build up a good spread of notes across several credit grades and create a portfolio with a weighted average rate of say 13.87% I can subtract out overall estimated defaults and arrive at a rather robust 10.82%.

No Vomit Comets- With lending on Lending Club I don’t have to worry about market swings, what is the Federal Reserve doing today, what are the talking heads on CNBC screaming for me to buy today, etc. I will have a portfolio of notes which are pretty boring in comparison and will return to me profits annually and predictably year after year after year. No 35% UP, 40% DOWN, 7% UP, 19% DOWN to worry about. I can sleep better at night and know that annualized and through compounding I could bet the crap out of the stock market (especially with how certain things are these days, don’t be fooled by current uptrends).

This brings me to my personal plan for lending is to create and grow a stable, predictable cash flow source that will allow me to do the things I love, with the people I love within the timing and manner which I choose to execute it. I don’t plan on retiring and what in the Hell is that anyway?! Sounds like a bunch of old folks sitting around talking about the good ol’ days while pooping their pants. No thanks, Mr. Geezer! I plan to live life now AND later to the fullest. Work, play, live, love, learn, innovate… And remember to pillage (talk to a tax advisor) before you burn (invest in anything mentioned here)!

Today, ladies and gents, my account has four new notes inside of it. Per yesterday’s post, I was a little miffed that two were canceled by Foliofn (the handler of the secondary marketplace for Lending Club) because they were in a ‘payment in progress’ status. My advice to lenders who purchase or sell on the secondary market… If you see the payment is process, DON’T TOUCH IT! You’re just holding up your money for at least a day before it cancels and you’re back at square one. Anyway, enough complaining on this end of things. As you can see below I’ve changed the composition of the portfolio a little since the last update. I now have extended my risk into the C-E credit range. I couldn’t find any good D grade notes but will be hunting for some next time I have some new funds in the account.

This brings me to a new issue… The economy. My ‘job’ today notified me that I cannot exceed 34 hours per week which is sort of like a pay cut, but it’s temporary due to the traditional slowness in my industry this time of year (real estate/demographics)  and working in tandem with an otherwise pitiful economy as the year draws to a close. This hopefully means the Spring will bounce back the hours and business like a delicate flower hiding under the snow. Secondly, the Mrs. and I are moving to a new place in a few weeks which means we have moving costs, etc to contend with (thank God for savings). Thirdly… The Holidays are nearly upon us which will further zap resources away. I hope to continue to transition money from Prosper.com and Kiva.org into new lending opportunities at Lending Club and end the year well above $1,000 inside this portfolio (easy target even under the above listed conditions I think). At the end of the day I should be glad I have a job, a nice new place to live and friends and family to celebrate the Holidays with. This extra time from work should (I hope) allow me to spend more time with you, my readers, in exploring the newness and truly remarkable things that peer lending offers us. Whether your focus is philanthropy or profit, this industry has you covered from end to end. If you have a topic you want to discuss either with me personally or want me to write my opinion on, please tweet me or email me through the above links. I appreciate all of you!

Bonus item…

Lending Club posted a replay of last week’s presentation by Scott Langmack and Patrick Gannon on “IRA’s: The Power of Compound Interest”.

Well, I was wanting to report the purchase of four new notes from over the weekend, but two of them got canceled this morning. Why you may ask? Simple really… The had payments in progress which is pretty much a 6′6″ linebacker standing in the way of me and the purchase (which sucks because I’m only 5′3″ and my wife is 4′10″). If a payment is in process by the borrower the note doesn’t know to whom the interest payments go to and therefore it calls a flag on the play and cancels the deal you thought you had in the bag. This is one area where I wish notes that are in the payment cycle (that 3-5 day window each month) can’t be bought or sold. I had two really fine notes in the queue and was saddened to know I had to go hunting again for two more which at this point in the day won’t clear until late tomorrow. This is about the 4th time this has happened since I started building up the TLVC Portfolio. Grrrrr….

So, Lending Club… We need to talk. Can you set it up so that instead of wasting the buyer’s/seller’s time you block notes that are in the payment time zone from being sold in the first place? You’d make me and others much happier in the process and I won’t miss out on opportunities like this again and again and… !

LendingClub.com has been nominated for this year’s Crunchies Award for the ‘Best Start-Up’ category. This year… They had better win!:-) Please take 20 seconds and nominate and retweet this link to others! Go Lending Club!

Lending Club unleashed unto the world a brilliant new investor interface. The reason I haven’t discussed it until now is rather simple… I live in an exiled State (Arizona) which isn’t currently able to grab notes in the primary marketplace straight from Lending Club. So as of right now I’m loner, a secondary-marketeer seeking the cheap thrills of a bargain on the Foliofn marketplace while I sit in envy of those in other States who can savor the goodness of the new tools. I absolutely love what has become of the investor tools and know 2010 will only bring more enhancements for borrowers, lenders and statistical geeks alike.

A short video introduction into Lending Club’s new interface.

So this evening on Twitter LendingClub posted a link to a new commercial which will be airing on televisions near you soon. Check out their simple, yet effective ad for television. Doesn’t tug the heart or beat around the bush. Plain, simple and direct! Let me know what you think of their new campaign. Also, anyone win the Twitter contest which is starting it’s second week? I’ve won, my wife has won… Why haven’t you won? Go and follow @lendingclub now for $50 to start a new account and a free shirt!

A couple of new notes were added to the portfolio last week. This helped shift the allocation into a better blend of A and B grade notes. As you can see below it is an 87/13 A to B mix. There are now 31 active notes churning at an estimated $25.43 per month which is enough to purchase one new note per month just from the cycling of money. I hope to add more money soon, however, our move in only a few weeks away and resources are focused on that for the time being. I do plan on directing the continuous flow of cash coming out of Prosper.com and Kiva.org into the account which should give me a large enough push to hit at least 50 notes by year’s end. The additional cycling of money out of legacy notes (which dwell inside the legacy portfolio) should add even more steam to this engine as the year draws to a close. I will be discussing my plans for 2010 in an upcoming post as well.

Just a reminder that this Thursday @ 4pm PST Lending Club is hosting another investor webinar. Scott Langmack will be presenting again with a focus on the IRA option at Lending Club. I don’t have any plans currently to open an IRA with Lending Club, but I want to hear what he has to say about the potential of such accounts, tax advantages, strategies, etc. I’ll be writing about that after the presentation and let you know my thoughts about what was said.

Finally, if you are on Tumblr.com, I have linked up this site to there to help spread the joy of peer-to-peer lending and my experiences with the various platforms. So please, follow me and tell others. Also, don’t be shy about comments. I don’t know if I’m discussing stuff you want to hear about or not without comments and messages from you. Hope you are having a great weekend!

My wife and I were at Lowe’s a couple of days ago pricing paint and other items for our move and something hit me… How do people pay for home improvement projects? Well, statistics show that most projects done under $5,000 are put on a credit card and that, in my opinion, is no good. If you put that project on a credit card the odds are good that you’ll either pay dearly in interest (upwards of 20%) or you’ll prolong the agony by not budgeting a reasonable repayment plan. So, I have a solution to recommend… Lending Club! Think about it… Low interest rates (currently 7.89% and up) , fixed rate of interest and fully amortized which payoff in 36 months like clockwork and the loan application process is a cinch (takes about 3-5 minutes) to go through. Plus you’ll have the funding provided by people just like yourself!

For comparison…

Assuming a 15% interest rate, which also assumes your credit card company doesn’t change the terms of your card which is happening more often and jack up your rate or cancel your card, etc; and a monthly budgeted and strictly followed repayment of $175 it would take you 36 months to payoff the credit card and this also assumes you don’t tack on more to the card during this time.

The total estimated interest paid… $1,240.

Or assume you make the min. payment (4% of balance) it would take you 134 months or a just over 11 years to repay…

Total interest paid would be, wait for it… $2,180… OUCH!

Now, assume you get a loan through Lending Club at say 9.5%… Monthly repayment amount please… $161.

Total estimated max. interest paid… $760 and it’s paid off in 36 months (or less if you pay it off early)!

STOP ASSUMING!

Amortization, scheduled and predictable payments makes all of the difference! Savings in interest alone is nearly $500 and borrowing has never been so easy. So next time you are doing that fixer-upper large (loans as large as $25,000 are available) or small (or as small as $1,000) and need some extra help… Seek the help of your family, friends, neighbors and especially the lenders at LendingClub.com for your project. Otherwise you’ll just be the ‘ass’ who’s overpaying the credit card company.

More information about why Lending Club is the place to go for your home improvement loan needs is located here.

I have added more data snapshots of my Lending Club portfolios (Legacy, pre-SEC stuff; and TLVC, which is the new one which contains tradeable notes) and their performance. I will keep these up-to-date as new notes are added over time and old legacy notes (100% which are in the Legacy portfolio) end either the good way or the not so good way. Linked below or up top on the ‘Portfolios & Performance’ tab.

Portfolios & Performance

Again, I appreciate your kind words of encouragement and even the corrections (Kiva stuff from yesterday which still has me a little surprised since I had no idea). Comments, email and tweets are always welcomed!

LendingClub.com is running another Twitter contest which is actually more challenging than it looks. First, I recommend following @robgarciasj and @lendingclub to get all the details (no, I’m not going to give you links because that removes half of the battle that awaits you).

Basically, at 8am PST they post clues about the loan listing you have to hunt down and then tweet back with a link to it. So this morning’s clue was find the BoA loan for someone in Florida… Well, since there were like 15 pages of loans available it was easier said than done. I found two other loans that were close, but wrong states. I finally dug it up (I’m not going to give you the link, you want it you need to follow me, it’s in there @thelittlevc). Good luck with the contest and feel free to rub it in if you win and I don’t!:)

Scott Langmack has the legendary status in the Lending Club community that Superman does in Metropolis. His advice, experience and investing wisdom can be put to use by veterans and beginners to the platform. Boiling down his principle into plain English… Diversification offsets risk and boosts overall returns! So the more loans one has, or the larger sampling of the entire marketplace, the lower one’s risk is. Think of it, as he does, as a jar full of white gumballs, but 1 out of every 10 are red gumballs (those are the sour ones). The larger the jar, the lower the odds of pulling out a red gumball and making a face. Scott has more details on his website located here as I can spend all day restating all the things he explains so clearly on his site. There should be a recap video on Lending Club’s blog by late tomorrow per usual.

Currently my portfolio is still rock solid and growing at a steady rate considering I just started it around two weeks ago. I now have 26 notes in the portfolio averaging a return of 9.42%. It is nearly cycling (total repayments) at a multiple of one which means I can purchase almost one note per repayment cycle (month). I will be receiving new funds tomorrow morning for investing and seeding new money next week. I want to get the portfolio up to 100 notes in the next couple of months (by March 2010?). A current snapshot of my investment in ‘The Little Venture Capitalist’ portfolio is below. Note that the allocation has shifted to an 88/12 (A/B) blend which I am very comfortable with at this time. I may go fishing for a good looking C note tomorrow…

I also want to take a moment to let you know I am now on Facebook.com. Please become a fan of this site as it makes me smile and keeps me motivated to locate and talk about the latest innovations and news within the peer lending industry! I am currently working on a post about Kiva.org and Microplace.com and how they can be useful within any P2P portfolio (socially or financially). So look for that this weekend and much more.

Finally… Lending Club’s new investor interface introduction video can be found here! Amazing stuff coming out of little Sunnyvale, CA these days!

One of the traditional dilemmas with starting a home-based business, expanding an existing business, creating hobbyist-based business or entering a multi-level marketing business, etc, etc has been obtaining the necessary resource that makes it all possible… CASH!

For many people their dream of igniting their passion and starting a business or getting a patent or just purchasing equipment can mean a nasty trip to the bank to be torn apart mentally and financially by a bank manager or loan officer. Thanks to sites like Lending Club there is now a way for entrepreneurs, stay at-home moms (who do work and very hard), or hobbyists to tap into these precious resources online and develop or expand their business into something big and successful. Peer lending is an ancient practice that has been rediscovered for the modern age. The ability for strangers to pool money together and stand behind a business, like a little venture capitalist (that sounds pretty nifty) is now here.

Lending Club handles all of the paperwork for the borrower such as credit checks, employment verification, payment collection and amazing service. For the lenders they handle all of the SEC paperwork and other nightmarish tasks that on our own would be impossible to perform such as collections, payment distribution, accounting and tax documentation. For borrowers the process is fast, simple and beautifully orchestrated. No questionnaires to worry about, no interview process, no sitting in a hot room while the loan officer goes to talk to his boss about you or so you think and stressing all the while. That’s all gone now! Borrowing can be as a quick and easy a the local drive-thru (maybe even faster, fewer calories and definitely more ecological) to get dinner for your spouse and kids! Simply go to their website with your social security info, driver’s license and some details about what the loan is for. Give as clear and in-depth a picture of what you are doing to grow your business, what kind of business and be prepared to answer some very smart and curious lender questions over the course of your listing’s time online.

Once you have all of your, ahem, little venture capitalists behind you Lending Club will take a day or two to finalize things. This may require you to fax or email them some paperwork such as paystubs, etc. No DNA samples or signing over of your first born however. Once that’s all done the money lands in your bank account with a cannonball splash and you can go conquer your world and grow your business!

Helpful tips for borrowers…

Be realistic- Don’t go in asking for $25,000, the maximum allowed, unless you have some seriously ambitious plans and if you do you’ll want to follow the next tip below. Look at the monthly cost and remember, unlike a credit card, these loans are fully amortized which means you have a simple, concise monthly payment with no surprises to factor in (hey, who bumped up my credit card interest rate again?!).

Be specific and detailed- Give lenders the 411 on your business. What is it’s market, who are it’s customers, how long has it be around (or rattling around inside your head), do you have employees, do you have other capital or loans involved already in the business… Think like a little venture capitalist would as they comb through the details and find that golden piece of information that sells them on your idea. Scream out the passion inside of you and lenders will flock to you every time!

Be ready- Lenders will ask questions, they are an inquisitive bunch. Answer questions clearly and politely. If a lender asks a question that makes you uncomfortable or angry you can ignore answering but you’ll possibly lose them as a lender. Have your documentation ready… Paystubs (last two paystubs), tax return information and a couple of recent utility and/or phone bills ready for Lending Club wouldn’t hurt. These guys are thorough too, so impress them with your promptness and they’ll seriously take good care of you. I promise!

Be a good borrower- If you find yourself struggling with payment… CALL LENDING CLUB IMMEDIATELY! They can help you if you help them. Communication is a winning strategy for everyone involved. So if you are late or think you’ll be late, be courteous and notify them before they notify you.

Be an activist- Share your story with others via Twitter, your business website (‘this business is proudly funded by lenders at LendingClub.com’ is always sweet to see), or the best one of all… Word of mouth! Hey, did you know you can earn money by referring friends or other like-minded entrepreneurs to Lending Club? See it a win-win for all!

Be a lender- As your profits rise in your ever-expanding business empire you can become one of those special little venture capitalists yourself and reinvest in others. Lending takes some thinking, a dash of luck and some patience, but you got this far right? Invest in others as they invested in you and you’ll reap the rewards every day!

So all of you entrepreneurs, you dreamers and thinkers of creations yet to be unleashed upon the world, you Napoleans of innovation and drive… Meet Lending Club and rejoice for now there is an option that won’t make you break a sweat! You do that enough on your own already running your business I hope!;-)

The three notes I mentioned yesterday posted to my account today. This brings the total number of notes up to 24 and adds two ‘B’ grade notes to the TLVC portfolio. I won’t be able to add new funds until next week, but I should have enough activity to purchase 2-3 notes just from cycling loan payments in the legacy portfolio and the TLVC portfolio. Since I can now see the performance in greater detail on all credit grades and loan types I should find the confidence to step into ‘C through E’ range notes over the next several weeks to sprinkle some credit grade diversification into the mix. My core holdings will still and always be ‘A’, but venturing into other grades will help prop up returns and cash flow potential over time. I really couldn’t see within the numbers presented on the old statistics screen that the real winners are in the mid-range on the credit grades (C through E). I don’t know how or if this will change over time as the economy twitches and fidgets with uncertainty, but time will tell and the stats will become apparent.

Today I had the pleasure of joining a webinar in which the new statistics tool was unveiled by Lending Club. Let me first say that Lending Club still has yet to fail me with interface changes. The statistics page is by far the juiciest, most useful tool I’ve seen in the industry for tracking historical note data, credit grade performance, loan type performance and so much more! They didn’t leave me wanting for much more in the way of analytic interpretations of raw numbers. They also announced a new ‘No Fee IRA’… Contact Lender Services for more information on minimums, etc. So without further ado…

Highlights Page

Lists overall performance numbers such as funded loans, declined loan requests and even interest paid to investors (would be nice if it told how much it Uncle Sam took, but that may be asking too much).

Performance Page

Lists average interest rate and return by credit grade and shows originating interest rate average per grade. Lists return by loan amount (how much was borrowed) and return by stated loan purpose (Yes, Lending Club, I’m building a nuclear fallout shelter… Is that home improvement or moving expenses?)

Loan Performance Page

Lists loan demand, average stated interest rate and average borrower FICO Score over time. Also lists out performance numbers by credit grade in massive, mind-numbing detail.

Further Details Toggles

Not enough data? Click this for total mind-blending!

And just when you thought there was plenty of data to look at they had to go all the way to ‘11′! Select the little frame arrow in the upper left of the graphics and you will be greeted with even MORE details. So for example, if you wanted to see more information on ‘Report Loan Purpose’ you can click the arrow and find yourself looking at this…

So as you can see the statistics screen absolutely dominates the numbers game. One thing I would love to see Lending Club implement, knowing that they can do this now, is the ability to analyze my own portfolio. Lets say I want to know how my portfolio is balanced by FICO Score or by ‘Reported Loan Purpose’ or loan amount or a combination of any or all of these key items. I think the brain trust inside of Lending Club is well on the way to doing this, but I’m going to insist they do it as they’ve shown what they can do for the entire marketplace, now show me the power in my portfolio!

I’ll post a link for the replay once Lending Club posts it. Sam and Patrick did a wonderful job presenting as they always do. Great work and kudos are due to the site development team! You’ve got mad programming skills in the house!

An addition BONUS link… Preview of the new Lender interface that is coming soon!

This afternoon, after the appropriate time to post for the day, I purchased three juicy notes, all ‘A’ grade. So I should have another snapshot posting tomorrow evening. Tomorrow is also the unveiling of the new statistics page over at Lending Club which sounds like a welcomed addition, especially if it’s a visual masterpiece. There is a webinar which I will be participating in at 4PM (PST) and should have notes to share soon afterward. If you want to attend and haven’t registered this link should allow you to sign up. Next week Scott Langmack makes another appearance to talk about diversification and if you want to join that webinar (4PM PST as well) you’ll want to register here. The webinars are always great to participate in as you can usually get a question in to them live. Well, sorry so short… watching the Dodgers vs. Phillies game.:-)

Thanks to WordPress this blog is now mobile compatible! That’s right…

Now “The Little Venture Capitalist” looks sharp on your iPhone, Android, Sidekick, Blackberry and more! Take me to work, to coffee, the beach, on your date night; but please, don’t take me to your dentist or doctor appointments unless you absolutely have to!

So thank you WordPress for giving me the chance to find all my readers regardless of where they are!

More on WordPress’ mobile move here @ CNET.

Trying a new type of post called ‘Peering Around’ which is a summary of peer lending/p2p lending news I’ve spotted on the web over the past couple of days… Hope to make these posts twice per week.

Kiva.org news…

• “Kiva Is Not Quite What It Seems…” by David Roodman and a rebuttal article found here which was written by the Kiva Fellows blog.
• Sharing4Caring campaign rewards Kiva.org with $1 for every retweet (that’s Twitter to those familiar). Click here for details.

LendingClub.com news…

• “Lending Club Hops on the Webinar Bandwagon” by Finance Without Borders. This also serves as a reminder of TWO upcoming webinars being held by Lending Club.

Unveiling the New Statistics Section October 22, 2009, 4:00 – 4:45 (Pacific Time)
Higher Returns Through Diversification with Scott Langmack October 29, 2009, 4:00 – 5:00 p.m. (Pacific Time)

• P2PLend has an oh-so-true perspective on loan titles… I love a good rant! Also has a good post on buying empty promises.
• ‘the Peer to Pick’ blog is one of my fav’s as he shares his adventures (and misadventures) in this crazy thing we call P2P lending. Logan, the blogger, has some great points with regards to lending and even tracks his performance, purchases, etc. So link him up!

Prosper.com news…

• $100 ‘Thank You!” referral bonus is now active. Not linkable remotely that I can tell (for retweets, etc), but useful nonetheless!

General P2P news…

• Interesting read over at Prosper.com’s blog about “Financial Start-ups Form ‘Coalition for New Credit Models’.” Seems to be a little more than ‘toot my horn’ vs. useful information, but there are some other companies mentioned as well.
• P2p Investing Poll over at LinkedIn. If you don’t have an account, budget 2 minutes, if you do, seconds will be needed.
• JustThrive has a great article on Peer lending called “Peer to peer lending: So crazy it works” which was called “So crazy it might work” up until Twitter peeps spoke up and pointed out that it IS working.;-)

If you have news you want to share such as an article you found about P2P lending or your own personal experience please email me (thelittlevc at gmail dot com) or send me a message on Twitter. I’d love to hear from you and share your find or story with others!

Four notes cleared the gauntlet today which brings the portfolio up to nearly $500 in value. I found two well-aged ‘B’ graders which fit well into my plans, home remodels, and brings the note count up to 21 total. I agree with the two home remodelers’ thinking… Fix it up now and when the market improves in say one to two years they can sell with value-added upgrades such as modern kitchens, flooring, bathrooms, etc and knock the sale out of the park. Maybe I’m trying to read minds, but it could just be they want to do it now while rates are low and Lending Club made the process easier than working with the local bank or credit union. Whatever the reason, these two have several months of payments under their belts which makes me far more comfortable owning them. Plus, the lender who sold them sold at a very low mark-up (<1%) which made them hard to pass up.

Expected monthly payment ($17.49) and weighted average return (9.46%) are right on target. Heck, repayments on the portfolio right at this moment can pay for my wife and I to go to Chipotle once per month and no, I don’t plan on blowing it on huge calorie intake binges, but imagine what it can do in a year, decade or beyond! The cash flow is the real focus for us (wife and I) as we envision it becoming a beastly thing, something that can tackle any crisis from prolonged unemployment, unplanned car repairs, health deductibles or, God forbid, funeral expenses. On the lighter side, imagine an account that can allow one to take a month off to go visit family, tour the country or travel to distant lands, purchase a piece of real estate or just some hobby expense without worry about how much is going on a credit card or those lingering ‘how am I going to afford this?’ questions that follow purchases or travel. My people, the people I invest in, are helping me meet my life goals and I am helping them achieve theirs. This is the truly intriguing cycle that peer lending offers, help in, help out and back around it goes…

A couple of lenders have shared their ideas on note purchasing/trading  strategy over at Twitter and one thing that always is brought up is why is there a secondary market, how can it be used for profit/strategy; and should it be used in the first place? Well, first of all, if you are like me and located in a State that isn’t currently able to purchase notes right off the site, whether it be LendingClub.com or Prosper.com, you need another option until the regulatory approval has been given (weeks, months, years from now). Prosper.com doesn’t allow use of their trading platform (aka secondary market) even in States without regulatory approval whereas LendingClub.com does (nobody at Prosper has been able to answer this question of difference clearly yet, so an email is much welcomed).

So focusing on LendingClub.com in this context, why would you want to begin accruing notes this way? Well, first of all, it’s NEW so several lenders still don’t know what the heck they are doing and set their mark-up (the difference between the value of the note and the cost/discount to you) either at super-discount (negative markup which is super-delicious to me) or into the stratosphere at like 100%+ mark-up which is just ridiculously greedy.

Shopping for notes is relatively easy at LendingClub’s secondary marketplace (ran by Foliofn.com), but does need some refinement (saved searches please) to become the mature tool it needs to be. Notes can be browsed by interest rate range, status (is it current, ever missed a payment, is it late, etc) and age of the note. Some things I’ve seen that drive the secondary market for better or worse…

Liquidity challenges… Lenders who have access to the primary note market tend to sell for liquidity and I applaud that as that is one of the main attractions for myself as well. What does this need for liquidity mean to the lender purchasing that note in the secondary market? It could mean deflated risk from notes that have a proven track record or notes that are being sold quickly and at a discount which means the purchaser gets the interest plus a handsomely undervalued note.

Modest mark-up approach… Sellers of notes also see a potential for profits with micro-mark-ups over what they pay to sell (1%) and what they are to lose on the interest payment that goes to the buyer. Personally, I’m comfortable with notes selling for up to 3% mark-up but it had better be a true gem with history that is several months old.

Tick-tock… Timing can also be used to milk the secondary marketplace by buyers if they use ‘time of day’ or ‘day of week’ strategies. If you have the patience (I rarely do) you can usually see a swelling of notes for sale from Friday afternoon through Sunday evening which are primed for sale at, as I’ve observed, low mark-ups in anticipation of fresh money come Monday morning. If you waltz into the weekend with cash in your account you could use this strategy to pounce on some amazing deals throughout the weekend and see them clear processing Monday afternoon.

Only a Fool… The thing that drives me completely nuts is the lender who sells their note at a mark-up GREATER than the anticipated return to the buyer. But you know what, some people are in such a hurry I’m sure this strategy could work, but I’m sure it would be a case of fool me once, fool me twice to whomever gets to hold the bag in the end.

There are likely more things I’ve seen but can’t quite put a ’strategy’ moniker on it. The trading platform at Lending Club is still relatively new and everybody who touches it has to learn a whole new process and method of pricing. I would like to see a seminar from Lending Club on utilizing the trading platform which would help buyers and sellers find a balance to their strategies. Profits can be made by sellers, liquidity needs can be met and notes can be sold to satisfied buyers if everyone could see the secondary market for what it is… A TRADING market, much like the stock market. Credit grades will rise and fall from favor, types of loans will find favoritism and then pass the torch to something else.

Tax consequences… Any interest you receive and any mark-up advantage (profit for seller or discount for buyer) is taxable at your normal income tax rate. Consult with a tax advisor for more information, but last year the documents were clear to a point (cost basis was something I had to research so I hope Foliofn will fix this fault).

As a lender, even if I wasn’t ’stuck’ in the trading platform I would still use it for liquidity, purchasing notes that have history (payments over time on a higher risk note could equal value to buyer) or selling notes that have some underlying credit issues (since it is tracked by Lending Club which is just amazingly convenient).

So should you use the the trading platform… Yes, and don’t look back, it’s a tool for buyers and sellers alike. Just as you would sell a stock for any number of reasons, selling notes fulfills that same inner set of needs. Whether you want to walk away from lending (email me if you are in crisis please) or just need liquidity it is always nice to have a way to sell. On the flip side it’s always great to have the ability to remove some risk buy purchasing notes that have proven that they can and will pay on time (remember, a note can go late any anytime, but historically they go late early if they are going to go late at all more often than not). If you find a strategy and it’s working, please let me know unless you want to be a greedy miser and not share your success story with everyone that is.

Happy lending AND trading!

The site transition is finally complete. All of the older blog posts have been moved over/copied and things have been tweak, re-tweaked over and over. I’m nearing completion on the tinkering, but am looking forward to actually have a full-blown website to share my thoughts, the thoughts of others (lenders, borrowers and LC employees are welcome to be interviewed for a post of course). I’ve been contemplating the ownership of an actual website for a long time and finally took the plunge.

So welcome to the site and please, let me know your thoughts on lending, borrower, the platform in general, other P2P site, blogs, opinions, thoughts or jokes. Glad you came, please follow me on Twitter or email me about your experience in P2P or life in general.

So it has been nearly a week since I started this blog and since originally reported my legacy portfolio has seen some improvement, some 15-20 day loans flipped back into ‘Current’ territory. One thing people should know as I build up the new Little VC Portfolio is that I based it upon a proven factoid in my legacy portfolio… I’ve NEVER had an ‘A’ grade loan go 31-120 days late or beyond. This is why I feel a strong core holding of ‘A’ grade notes is essential to a successful portfolio in any economy. Sure, you can have your riskier notes, but please don’t expect them to carry you or your portfolio to high returns without something consistently performing well in your portfolio to replace the cost of defaulted/charged-off notes that will occur with an imbalanced portfolio. Think of ‘A’ notes as your bonds but at a much higher yield (presently) that are rock solid and can pick up the losses and allow your portfolio to continue upward with growth no matter what.

These are my opinions and of course I know other lenders have their own strategy. Please look at all options, seriously, I implore you to look at what others are doing with their portfolios as peer lending is so new and exciting that no one strategy can declare itself the winner yet. I can show you proof in the pudding that a portfolio consisting of 80-85% ‘A’ grade notes and a mix of B-C notes making up the rest can return a healthy 10%+ return over time if you do your homework. Why ride the rollercoaster of stocks when you can sleep better at night knowing you helped someone fund a home improvement, consolidate debt, purchase a used car, go on a dream vacation or start a business? Seriously, invest in your fellow human beings because nothing beats teaming up with those who see their goals in technicolor and want YOU as their investor!

Thank you for reading and helping me realize a goal for myself… Investing with people and for people.

Repost… (transfer from old blog).

Nine notes cleared processing over at Lending Club this afternoon. This brings the portfolio up to a healthy level with all ‘A’ grade notes at this point. I will be looking at adding a couple of ‘B’ grade notes over the next week as new funds coming to the account and old legacy portfolio notes repay/payoff. I want to keep a 90/10 allocation until the core notes hit 50 total notes and then add a few higher risk notes over time (C – E grade to make up 5% of the portfolio) that have to spotless track records with 4 months of repayments as the higher the risk I purchase the longer the note should have had to mature to prove payment stability. The portfolio is still very much in its infancy, but will see regular funding from legacy funds, new cash and transfers of cash that are flowing out of Kiva.org and Prosper.com destined for use at Lending Club.

Oh, any suggestions for how the Performance Tracker should be changed around, what new data it should include, etc, please leave a comment or Tweet me @thelittlevc.

Lending Club is on pace for a $6M+ month as news spreads about the performance record and low cost to borrowers who are creditworthy. Join today!

Repost… (transfer from old blog)

Two new notes posted today which were purchased last Friday. Again, since I am focused on my core holdings right now all notes are ‘A’ grade to keep risk ultra-low (<1% default). There are two more transfers arriving this week totaling $300 which should allow me to purchase, via the secondary market, up to 13 notes. My strategy on purchasing has been to focus on ‘A’ grade with at least 2 months of payment history (on-time, now current) which keeps the cost under $25 per note. I also am looking for small portions of the total note, holding around $25 of any one note to increase diversification and lower overall risk. I’m also cycling legacy money (pre-SEC filing portfolio) back into the Little VC portfolio which is providing around 1-2 new notes per week on its own. For further performance information please visit the Performance Tracker in the upper left of this page.

So here is my snapshot as of this evening…