As filed with the Securities and Exchange Commission on October 9, 2008.

Registration No. 333-151827      

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 3

to

Form S-1

REGISTRATION STATEMENT

 

LendingClub Corporation

440 North Wolfe Road

Sunnyvale, CA 94085

(408) 524-1540

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Renaud Laplanche, Chief Executive Officer

LendingClub Corporation

440 North Wolfe Road

Sunnyvale, CA 94085

(408) 524-1540

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Meredith B. Cross

Erika L. Robinson

Wilmer Cutler Pickering Hale and Dorr LLP

1875 Pennsylvania Avenue, NW

Washington, D.C. 20006

(202) 663-6000

 

Approximate date of commencement of proposed sale to the public:   As soon as practicable after this Registration Statement is declared effective.

 

 

 

 

If any of the securities being registered on this form are offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box.   þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

Table of Contents

 

About This Prospectus

 

This prospectus describes our offering of our Member Payment Dependent Notes, which we refer to in this prospectus as the “Notes.” This prospectus is part of a registration statement filed with the Securities and Exchange Commission, which we refer to as the “SEC.” This prospectus, and the registration statement of which it forms a part, speak only as of the date of this prospectus. We will supplement this registration statement from time to time as described below.

 

Unless the context otherwise requires, we use the terms “Lending Club,” “the Company,” “our company,” “we,” “us” and “our” in this prospectus to refer to LendingClub Corporation, a Delaware corporation.

 

This prospectus describes our offering of the Notes under two main headings: “About the Loan Platform” and “About Lending Club.”

 

The offering described in this prospectus is a continuous offering pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”). Following the date of this prospectus, we plan to offer Notes continuously, and we expect that sales of Notes will occur on a daily basis through the operation of our platform. Before we post a loan request on our website and thereby offer the series of Notes corresponding to that member loan, as described in “About the Loan Platform,” we will prepare a supplement to this prospectus, which we refer to as a “posting report.” In that posting report, we will provide information about the series of Notes offered for sale on our website that will correspond to the posted member loan, if it is funded and closed, as well as information about any other series of Notes then being offered for sale on our website. We will file these posting reports pursuant to Rule 424(b) under the Securities Act within two business days of the initial posting of each loan request. We also intend to make at least weekly filings of supplements to this prospectus pursuant to Rule 424(b) under the Securities Act, which we refer to as “sales reports,” in which we will report sales of Notes we have issued since the filing of our most recent sales report. The sales reports will include information about the principal amount, loan grade of the corresponding member loan, maturity and interest rate of each series of Notes sold. The sales reports will also be posted to our website.

 

We will prepare prospectus supplements to update this prospectus for other purposes, such as to disclose changes to the terms of our offering of the Notes, provide quarterly updates of our financial and other information included in this prospectus and disclose other material developments. We will file these prospectus supplements with the SEC pursuant to Rule 424(b) and post them on our website. When required by SEC rules, such as when there is a “fundamental change” in our offering or the information contained in this prospectus, or when an annual update of our financial information is required by the Securities Act or SEC rules, we will file post-effective amendments to the registration statement of which this prospectus forms a part, which will include either a prospectus supplement or an entirely new prospectus to replace this prospectus. We currently anticipate that post-effective amendments will be required, among other times, when we change interest rates applicable to Notes offered through our platform or other material terms of the Notes. We currently expect that these changes will be disclosed in prospectus supplements posted on our website at the time of filing of the post-effective amendment, rather than through complete revisions to this prospectus.

Where You Can Find More Information

 

We have filed a registration statement on Form S-1 with the SEC in connection with this offering. In addition, upon the effectiveness of our registration statement, we will be required to file annual, quarterly and current reports and other information with the SEC. You may read and copy the registration statement and any other documents we have filed at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public at the SEC’s Internet site at http://www.sec.gov.

 

This prospectus is part of the registration statement and does not contain all of the information included in the registration statement and the exhibits, schedules and amendments to the registration statement. Some items are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and the Notes, we refer you to the registration statement and to the exhibits and schedules to the registration statement filed as part of the registration statement. Whenever a reference is made in this prospectus to any of our contracts or other documents, the reference may not be complete and, for a copy of the contract or document, you should refer to the exhibits that are a part of the registration statement.

 

Prospectus Summary

Electronic form and transferability		The Notes will be issued in electronic form only and will not be listed on any securities exchange. The Notes will not be transferable except through the Note Trading Platform by FOLIO fn . There can be no assurance, however, that a market for Notes will develop on the trading platform. Therefore, lender members must be prepared to hold their Notes to maturity. See “About the Loan Platform — Trading Platform.”

 

U.S. federal income tax consequences		Although the matter is not free from doubt, Lending Club intends to treat the Notes as indebtedness of Lending Club for U.S. federal income tax purposes. As a result of such treatment, the Notes will have original issue discount, or OID, for U.S. federal income tax purposes because payments on the Notes are dependent on payments on the corresponding member loan. Further, a holder of a Note will be required to include the OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest being paid on the Note), regardless of such holder’s regular method of accounting. Prospective purchasers of the Notes should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase and ownership of the Notes, including any possible differing treatments of the Notes. See “About the Loan Platform — Certain U.S. Federal Income Tax Considerations” for more information.

 

Financial suitability		To purchase Notes, lender members must satisfy minimum financial suitability standards and maximum investment limits. Specifically, lender members must either:

		• have an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or

		• have a net worth (determined with the same exclusions) of at least $250,000.

		In addition, no lender member may purchase Notes in an amount in excess of 10% of the lender member’s net worth, determined exclusive of home, home furnishings and automobile.

		Lender members should be aware, however, that in the future we may apply more restrictive financial suitability standards or maximum investment limits to residents of certain states. Before purchasing Notes, each lender member must represent and warrant that he or she meets these minimum financial suitability standards and maximum investment limits. See “About the Loan Platform — Financial Suitability Requirements.”

 

Questions and Answers

Q:		Who is Lending Club?
A:		Lending Club is an Internet-based social lending platform.
Q:		What is the Lending Club platform?
A:		Our platform allows qualified borrower members to obtain unsecured loans with interest rates that they find attractive. Our platform also provides our lender members with the opportunity to invest in notes that are dependent on borrower member loans with credit characteristics, interest rates and other terms the lender members find attractive. As a part of operating our lending platform, we verify the identity of members, obtain borrower members’ credit profiles from consumer reporting agencies, such as TransUnion, Experian or Equifax and screen borrower members for eligibility to participate in the platform. We also service the member loans on an ongoing basis.
Q:		What are our Member Payment Dependent Notes?
A:		Our lender members may buy Member Payment Dependent Notes issued by Lending Club. In this prospectus, we refer to our Member Payment Dependent Notes as the “Notes.” The proceeds of each series of Notes will be designated by the lender members who purchase the Notes of the series to fund a corresponding member loan originated through our platform to an individual consumer who is one of our borrower members. Each series of Notes will have a stated interest rate, which is the interest rate for the corresponding member loan. We will pay principal and interest on any Note you purchase in an amount equal to your pro rata portion of the principal and interest payments, if any, we receive on the corresponding member loan, net of our 1.00% service charge. We will also pay you any other amounts we receive on the Notes, including late fees and prepayments, subject to our 1.00% service charge, except that we will not pay to lender members any unsuccessful payment fees, collection fees we or our third-party collection agency charge or any payments due to Lending Club on account of portions of the corresponding member loan, if any, that Lending Club has funded in its capacity as a lender on the platform. The service charge will reduce the effective yield on your Notes below their stated interest rate. The Notes are special, limited obligations of Lending Club only and not the borrower members. The Notes will be unsecured and do not represent an ownership interest in the corresponding member loans.
Q:		Who are our lender members?
A:		Our lender members are individuals and organizations that have the opportunity to buy our Notes. Lender members must register on our website. During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes, a tax withholding statement and the terms and conditions of the Lending Club website, and must enter into a note purchase agreement with Lending Club, which will govern all purchases of Notes the lender member makes.
Q:		What are the member loans?
A:		The member loans are unsecured obligations of individual borrower members with a fixed interest rate and three-year maturity. Each member loan is originated through our website, funded by WebBank at closing, and immediately assigned to Lending Club upon closing in exchange for the aggregate purchase price we have received from lender members who have committed to purchase the Notes dependent on payments to be received on such member loan. A member loan will be issued to a borrower member if the loan has received full funding commitments, or if the borrower chooses to accept partial funding of the loan after receiving partial funding commitments. Except in the limited instances in which we perform income and employment verification, which we indicate in the borrower loan listing, member loans are made without obtaining any documentation of the borrower member’s ability to afford the loan.
Q:		Do member lenders loan funds directly to borrower members?
A:		No.   Lender members do not make loans directly to our borrower members. Instead, lender members purchase Notes issued by Lending Club, the proceeds of which are designated by the lender members who purchased the Notes to fund a loan to an individual borrower member originated through the Lending Club platform. Even though lender members do not make loans directly to borrower members, they will nevertheless be wholly

		dependent on borrower members for repayment of any Notes lender members may purchase from Lending Club. If a borrower member defaults on the borrower member’s obligation to repay a corresponding member loan, Lending Club will not have any obligation to make any payments on the related Notes.
Q:		What member loan amounts are available to borrowers on our platform?

A:		Borrowers may request member loans in amounts ranging from $1,000 to $25,000. Currently, we do not loan to borrowers in Idaho, Indiana, Iowa, Maine, Nebraska, North Carolina, North Dakota and Tennessee.

Q:		Who are our borrower members?
A:		Lending Club borrower members are individual consumers who have registered on our platform. All Lending Club borrower members:
		• must be U.S. citizens or permanent residents;
		• must be at least 18 years old;
		• must have valid email accounts;
		• must satisfy our credit criteria (as described below);
		• must have U.S. social security numbers; and
		• must have an account at a financial institution with a routing transit number.
Q:		Does Lending Club participate in the platform as a lender?
A:		From time to time, Lending Club may participate in the Lending Club platform as a lender. For example, during the time when our site was not open to new lender member commitments, borrower members could still apply for loans, which were funded and held only by Lending Club. Although we have no obligation to do so, we may fund portions of loan requests in the future.
Q:		How does Lending Club verify a borrower member’s identity?
A:		During borrower registration, we verify the identity of members by comparing supplied names, social security numbers, addresses and telephone numbers against the names, social security numbers, addresses and telephone numbers in the records of a consumer reporting agency, as well as other anti-fraud and identity verification databases. We also currently require each new borrower member to supply information about the member’s bank account.
Q:		What are the minimum credit criteria for borrower members?
A:		After we receive a loan request from a borrower member, we evaluate whether the prospective borrower member meets our credit criteria. Our borrower member credit criteria are designed to be consistent with WebBank’s loan underwriting requirements and require prospective borrower members to have:
		• a minimum FICO score of 640 (as reported by a consumer reporting agency);

		• a debt-to-income ratio (excluding mortgage) below 25%, as calculated by Lending Club based on (i) the borrower member’s debt reported by a consumer reporting agency; and (ii) the income reported by the borrower member, which is not verified unless we display we an icon in the loan listing indicating otherwise; and

		• a credit profile (as reported by a consumer reporting agency) without any current delinquencies, recent bankruptcy, collections or open tax liens and reflecting at least four accounts ever opened, at least three accounts currently open, no more than 10 credit inquiries in the past six months, utilization of credit limit not exceeding 100% and a minimum credit history of 12 months.
		See “About the Platform — How the Lending Club Platform Operations — Minimum Credit Criteria and Underwriting” for a more detailed description of our scoring process and evaluation of minimum credit criteria.

Q:		What are Lending Club loan grades?
A:		For borrower members who qualify, we assign one of 35 loan grades, from A1 through G5, to each loan request, based on the borrower member’s:
		• FICO score;
		• requested loan amount;
		• currently open accounts;
		• number of credit inquiries in the past six months;
		• utilization of credit limit; and
		• length of credit history.
		Applying these grading criteria, the following factors lead to a loan request being more likely to be designated grade A1:
		• higher credit score;
		• lower requested loan amount;
		• fewer credit inquiries;

		• at least six, but not more than 21, open accounts;

		• utilization of credit limit between 5% and 85%; and
		• greater length of credit history.
		See “About the Loan Platform — How the Lending Club Platform Operates — Interest Rates” for more information.
Q:		How do we set interest rates on member loans?

A:		Our interest rate working group sets the interest rates applicable to our loan grades. After a loan request’s loan grade has been determined, we assign an interest rate to the loan request. Interest rates currently range between 7.37% and 19.36%. We set the interest rates we assign to borrower loan grades in three steps. First, we determine Lending Club base rates. Second, we determine an assumed default rate that attempts to project loan default rates. Third, we use the assumed default rate to calculate an upward adjustment to the base rates, which we call the “Adjustment for Risk and Volatility.” See “About the Loan Platform — How the Lending Club Platform Operates — Interest Rates.”

Q:		What effects do the 1.00% service charge and our retaining unsuccessful payment fees have on the expected return of the Notes?

A:		The 1.00% service charge reduces both the interest and principal payments you receive on your Notes. The 1.00% service charge also reduces any late fees or amounts obtained from collections (net of any collection fees charged by us or our outside collection agency) that you may receive. Our retaining unsuccessful payment fees paid by borrower members has no effect on the payments you receive on your Notes. For a description of our 1.00% service charge and the unsuccessful payment fee, see “About the Loan Platform — How the Lending Club Platform Operates — Post-Closing Loan Servicing and Collection.” For illustrations of the effect of our 1.00% service charge on hypothetical Note returns, see “About the Loan Platform — How the Lending Club Platform Operates — Illustration of Service Charge and Annual Returns For Fully Performing Loans of Each Sub-Grade and For Sub-Grades Based on the Assumed Default Rate” and “— Illustration of Service Charge if Prepayment Occurs.”
Q:		Will Lending Club make payments on a Note if the corresponding member loan for the Note defaults?
A:		No.   If the member loan corresponding to your Note defaults and the borrower member does not pay Lending Club, Lending Club will not be obligated to make payments on your Note, and you will not receive any

		payments on your Note. We have no obligation to make any payments of principal or interest on a Note unless, and then only to the extent that, we receive payments in respect of the corresponding member loan, net of our 1.00% service charge. All payments are made on a pro rata basis, including any payments due to Lending Club on account of portions of the corresponding member loan, if any, funded by Lending Club in its capacity as a lender on the platform. Therefore, if a borrower member makes only a partial payment on a corresponding member loan and Lending Club has funded a portion of the member loan, all holders of Notes and Lending Club will be entitled to receive their pro rata portion of the payment.

Q:		Are the Notes secured by any collateral?
A:		No.   The Notes are not secured by any collateral, including the corresponding member loans, and are not guaranteed or insured by any governmental agency or instrumentality or any third party. The Notes are not subject to any credit enhancement.
Q:		How do lender members receive payments on the Notes?
A:		All payments on the Notes are processed through the Lending Club platform. If and when we make a payment on your Notes, the payment will be deposited in your Lending Club account. You may elect to have available balances in your Lending Club account transferred to your bank account at any time, subject to normal execution times for such transfers (generally 2-3 days).
Q:		Can lender members collect on late payments themselves?
A:		No.   Lender members must depend on Lending Club or our third-party collection agents to pursue collection on delinquent member loans. If collection action must be taken in respect of a member loan, we or the collection agency will charge a collection fee of between 30% and 35% of any amounts that are obtained. These fees will correspondingly reduce the amounts of any payments you receive on the Notes.
Q:		What happens if a borrower member repays a member loan early?
A:		We allow borrower members to make extra payments on, or prepay, their member loans in part or entirely at any time without penalty. In the event of a prepayment of the entire remaining unpaid principal amount of a member loan on which your Notes are dependent, you will receive your share of such prepayment, net of our service charge, and interest will stop accruing after the date on which such prepayment is received by us. If a borrower member partially prepays a member loan, we will pay you your share of the prepayment amount we receive, net of our service charge, and we will make available to you a revised schedule of anticipated payments reflecting the lower outstanding principal balance and lower monthly payments of the corresponding member loan.
Q:		How does Lending Club make money from the platform?
A:		We earn revenue from the fees we charge our borrower members and lender members. We charge borrower members origination fees, which currently range from 0.75% to 3.00%. We charge lender members a service charge of 1.00% of all amounts paid by Lending Club to lender members with respect to each Note. We also earn interest on member loans to the extent that we fund those member loans ourselves.
Q:		How are the Notes being offered?
A:		We are offering the Notes directly to our lender members only through our website for a purchase price of 100% of the principal amount of the Notes. We are not using any underwriters, and there will be no underwriting discounts.
Q:		Will I receive a certificate for my Notes?
A:		No.   The Notes are issued only in electronic form. This means that each Note will be stored on our website. You can view your Notes online and print copies for your records by visiting your secure, password-protected webpage in the “My Account” section of our website.
Q:		How are the Notes treated for United States federal income tax purposes?
A:		Although the matter is not free from doubt, Lending Club intends to treat the Notes as indebtedness of Lending Club for U.S. federal income tax purposes. As a result of such treatment, the Notes will have original issue

		discount, or OID, for U.S. federal income tax purposes because payments on the Notes are dependent on payments on the corresponding member loan. Further, a holder of a Note will be required to include the OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest being paid on the Note), regardless of such holder’s regular method of accounting. Prospective purchasers of the Notes should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase and ownership of the Notes, including any possible differing treatments of the Notes. See “About the Loan Platform — Certain U.S. Federal Income Tax Considerations.”
Q:		Will the Notes be listed on an exchange?
A:		No.   The Notes will not be listed on any securities exchange.
Q:		Will I be able to sell my Notes?

A:		The Notes will not be transferable except through the Note Trading Platform by FOLIO fn . There can be no assurance, however, that a market for Notes will develop on the trading platform. Therefore, lender members must be prepared to hold their Notes to maturity. See “About the Loan Platform — Trading Platform.”

Q:		Are there any risks associated with an investment in Notes?

A:		Yes.   The Notes are highly risky and speculative. Investing in the Notes should be considered only by persons who can afford the loss of their entire investment. Please see “Risk Factors.” Please also see “About the Loan Platform — Financial Suitability Requirements.”

 

Our Notes involve a high degree of risk. In deciding whether to purchase Notes, you should carefully consider the following risk factors. Any of the following risks could have a material adverse effect on the value of the Notes you purchase and could cause you to lose all or part of your initial purchase price or future principal and interest payments you expect to receive.

 

You may lose some or all of your initial purchase price for the Notes because the Notes are highly risky and speculative. Only lender members who can bear the loss of their entire purchase price should purchase our Notes.

 

The Notes are highly risky and speculative because payments on the Notes depend entirely on payments to Lending Club of unsecured consumer finance obligations of individual borrowers and contemporaneous payments on the Notes, which are special, limited obligations of Lending Club. Notes are suitable purchases only for lender members of adequate financial means. If you cannot afford to lose all of the money you plan to invest in Notes, you should not purchase Notes. You should not assume that a Note is appropriate for you just because it corresponds to a loan listed on the Lending Club platform or is presented as a choice by LendingMatch.

 

Payments on the Notes depend entirely on payments we receive on corresponding member loans. If a borrower member fails to make any payments on the corresponding member loan related to your Note, you will not receive any payments on your Note.

 

We will only make payments pro rata on the Notes after we receive borrower members’ payments on corresponding member loans, net of our service charge. We will not pay to lender members any unsuccessful payment fees, collection fees we or our third-party collection agency charge or payments due to Lending Club on account of portions of the corresponding member loan, if any, funded by Lending Club in its capacity as a lender on the platform. If we do not receive payments on the corresponding member loan related to your Note, you will not be entitled to any payments under the terms of the Notes, and you will not receive any payments. The failure of a borrower member to repay a loan is not an event of default under the terms of the Notes.

 

The Notes are special, limited obligations of Lending Club only and are not secured by any collateral or guaranteed or insured by any third party.

 

The Notes will not represent an obligation of borrower members or any other party except Lending Club, and are special, limited obligations of Lending Club. The Notes are not secured by any collateral and are not guaranteed or insured by any governmental agency or instrumentality or any third party.

 

Member loans are not secured by any collateral or guaranteed or insured by any third party, and you must rely on Lending Club and our designated third-party collection agency to pursue collection against any borrower member.

 

Member loans are unsecured obligations of borrower members. They are not secured by any collateral, not guaranteed or insured by any third party and not backed by any governmental authority in any way. Lending Club and its designated third-party collection agency will, therefore, be limited in their ability to collect member loans.

 

Moreover, member loans are obligations of borrower members to Lending Club, not obligations to holders of Notes. Holders of Notes will have no recourse to borrower members and no ability to pursue borrower members to collect payments under member loans. Holders of Notes may look only to Lending Club for payment of the Notes, and Lending Club’s obligation to pay the Notes is limited as described in this prospectus. Furthermore, if a borrower member fails to make any payments on the member loan corresponding to a Note, the holder of that Note will not receive any payments on that Note. The holder of that Note will not be able to pursue collection efforts against any borrower member and will not be able to obtain the identity of the borrower member in order to contact the borrower member about the defaulted member loan. In addition, as described in this prospectus, in the unlikely event that we

receive payments on the corresponding member loan relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity. See “About the Platform — Description of the Notes.”

 

Borrower member credit information may be inaccurate or may not accurately reflect the borrower member’s creditworthiness, which may cause you to lose part or all of the purchase price you pay for a Note.

 

Lending Club obtains borrower member credit information from consumer reporting agencies, such as TransUnion, Experian or Equifax, and assigns loan requests one of 35 Lending Club loan grades, from A1 through G5, based on the reported credit score, other information reported by the consumer reporting agencies and the requested loan amount. See “About the Loan Platform — How the Lending Club Platform Operates — Minimum Credit Criteria and Underwriting.” A credit score or loan grade assigned to a borrower member may not reflect that borrower member’s actual creditworthiness because the credit score may be based on outdated, incomplete or inaccurate consumer reporting data, and Lending Club does not verify the information obtained from the borrower member’s credit report. Additionally, there is a risk that, following the date of the credit report that Lending Club obtains and reviews, a borrower member may have:

 

 

Moreover, lender members do not, and will not, have access to financial statements of borrower members, or to other detailed financial information about borrower members.

 

Information supplied by borrower members may be inaccurate or intentionally false.

 

Borrower members supply a variety of unverified information that is included in the borrower member loan listings on our website and in the posting reports and sales reports we file with the SEC. We do not verify this information, and it may be inaccurate. For example, we do not verify a borrower member’s stated social affiliations (such as educational affiliations), home ownership status, job title, employer or tenure, and the information borrower members supply may be inaccurate or intentionally false. Borrower members may misrepresent their intentions for the use of loan proceeds. Unless we have indicated otherwise in a loan listing, we do not verify a borrower member’s stated income. For example, we do not verify borrower member paystubs, IRS Forms W-2, federal or state income tax returns, bank and savings account balances, retirement account balances, letters from employers, home ownership or rental records, car ownership records or any records related to past bankruptcy and legal proceedings. In the limited cases in which we have selected borrower members for income and employment verification, from the period from our inception to June 30, 2008, approximately 45% of these borrower members have provided us with satisfactory responses; approximately 5% of these borrower members have provided information that failed to verify their stated information, and we removed those borrower members’ loan postings; and approximately 50% of these borrower members failed to respond to our request or responded stating that they did not wish to provide information, and we removed those borrower members’ loan postings. The identity of borrower members is not revealed to lender members, and lender members also have no ability to obtain or verify borrower member information either before or after they purchase a Note. Potential lender members may only communicate with borrower members through Lending Club website postings, and then only on an anonymous and unverified basis.

 

If you rely on false, misleading or unverified information supplied by borrower members in deciding to purchase Notes, you may lose part or all of the purchase price you pay for a Note. Loan posting and borrower member information available on the Lending Club website will be statements made in connection with the purchase and sale of securities, and therefore subject to Rule 10b-5 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Loan posting and borrower member information filed in prospectus supplements will be subject to the liability provisions of the Securities Act. In this prospectus, we advise potential investors as to the limitations on the reliability of this information, and a lender member’s recourse in the event this information is

false will be extremely limited. Consequently, lender members should rely on loan grade, which we determine based on third-party credit report information, and the size of the loan request, and should not rely on unverified information provided by borrower members.

 

While we take precautions to prevent borrower member fraud, it is possible that fraud may occur and adversely affect your ability to receive the principal and interest payments that you expect to receive on those Notes.

 

We use identity and fraud checks with a third-party provider to verify each borrower member’s identity and credit history, as described in more detail in “About the Loan Platform — How the Lending Club Platform Operates — New Member Registration.” Notwithstanding our efforts, there is a risk that fraud may occur and remain undetected by us. While we will repurchase Notes in limited identity fraud circumstances involving the corresponding member loan, we are not otherwise obligated to repurchase a Note from you for any other reason. If Lending Club repurchases a Note based on identity fraud involving the corresponding member loan, you will only receive an amount equal to the outstanding principal balance of the Note. See “About the Loan Platform — How the Lending Club Platform Operates — Identity Fraud Reimbursement.”

 

We do not have significant historical performance data about borrower member performance on Lending Club member loans. Default rates on the member loans may increase.

 

We are in the early stages of our development and have a limited operating history. We began operations as an application on Facebook.com in May 2007. In September 2007, we expanded our operations and launched our public website, www.lendingclub.com. Due to our limited operational history, we do not have significant historical performance data regarding borrower member performance on the member loans, and we do not yet know what the long-term loan loss experience will be. The estimated default rates we use in calculating interest rates have not been developed from Lending Club loss histories. Member loans originated through the Lending Club platform may default more often than these estimated default rates. As loan loss experience increases on the Lending Club platform, we may change how interest rates are set, and lender members who have purchased Notes prior to any such changes will not benefit from these changes.

 

Default rates on the member loans may increase as a result of economic conditions beyond our control and beyond the control of borrower members.

 

Member loan default rates may be significantly affected by economic downturns or general economic conditions beyond our control and beyond the control of individual borrower members. In particular, default rates on member loans on which the Notes are dependent may increase due to factors such as prevailing interest rates, the rate of unemployment, the level of consumer confidence, residential real estate values, the value of the U.S. dollar, energy prices, changes in consumer spending, the number of personal bankruptcies, disruptions in the credit markets and other factors.

 

If payments on the corresponding member loans relating to your Notes become more than 30 days overdue, it is likely you will not receive the full principal and interest payments that you expect to receive on your Notes due to collection fees, and you may not recover any of your original purchase price.

 

If the borrower member fails to make a required payment on a member loan within 30 days of the due date, Lending Club will pursue reasonable collection efforts in respect of the member loan. Referral of a delinquent member loan to a collection agency on the 31st day of its delinquency will be considered reasonable collection efforts. If we refer a loan to a collection agency, we will have no other obligation to attempt to collect on delinquent loans. Lending Club may also handle collection efforts in respect of a delinquent member loan directly. If payment amounts on a delinquent member loan are received from a borrower member more than 30 days after their due date, then we, or, if we have referred the delinquent loan to an outside collection agency, that collection agency, will retain a percentage of any funds recovered from such borrower member as a service fee before any principal or interest becomes payable to you from recovered amounts in respect of Notes related to the corresponding member loan. Collection fees range from 30% to 35% of recovered amounts. See “About the Platform — How the Lending Club Platform Operations — Post-Closing Loan Servicing and Collection.”

Lending Club or the collection agency may not be able to recover some or all of the unpaid balance of a non-performing member loan, and a lender member who has purchased a Note dependent on the non-performing member loan would then receive nothing or a small fraction of the unpaid principal and interest of the Note. You must rely on the collection efforts of Lending Club and the designated collection agency, and you are not permitted to attempt to collect payments on the member loans in any manner.

 

If you decide to invest through the platform and concentrate your investment in a single Note, your entire return will depend on the performance of a single member loan.

 

Member loans originated through the Lending Club platform have a wide range of credit grades, and we expect that some borrower members will default on their member loans. If you decide to invest through the platform and concentrate your investment in a single Note, your entire return will depend on the performance of a single member loan. For example, if you plan to purchase $100 of Notes, and choose to invest the entire $100 in a single Note instead of in four $25 Notes corresponding to the member loans of four different borrowers, your entire $100 investment will depend on the performance of a single member loan. Failing to diversify your investment increases the risk of losing your entire investment due to a single borrower member’s default, or a small number of borrower member defaults. Diversification, however, will not eliminate the risk that you may lose some, or all, of the expected principal and interest payments on your Notes.

 

In the unlikely event that we receive payments on the corresponding member loans relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.

 

Each Note will mature on the initial maturity date, unless any principal or interest payments in respect of the corresponding member loan remain due and payable to Lending Club upon the initial maturity date, in which case the maturity of the Note will be automatically extended to the final maturity date. If there are any amounts under the corresponding member loan still due and owing to Lending Club after the final maturity, Lending Club will have no further obligation to make payments on the Notes of the series even if Lending Club receives payments on the corresponding member loan after the final maturity.

 

The member loans on which the Notes are dependent do not restrict borrower members from incurring additional unsecured or secured debt, nor do they impose any financial restrictions on borrower members during the term of the member loan, which may impair your ability to receive the full principal and interest payments that you expect to receive on a Note.

 

If a borrower member incurs additional debt after obtaining a member loan through the Lending Club platform, the additional debt may impair the ability of that borrower member to make payments on the borrower’s member loan and your ability to receive the principal and interest payments that you expect to receive on Notes dependent on those loans. In addition, the additional debt may adversely affect the borrower member’s creditworthiness generally, and could result in the financial distress, insolvency, or bankruptcy of the borrower member. To the extent that the borrower member has or incurs other indebtedness and cannot pay all of its indebtedness, the borrower member may choose to make payments to creditors other than Lending Club.

 

The member loans are unsecured credit obligations of individual borrower members. To the extent borrower members incur other indebtedness that is secured, such as mortgage, home equity or auto loans, the ability of the secured creditors to exercise remedies against the assets of the borrower member may impair the borrower member’s ability to repay the member loan on which your Note is dependent. Borrower members may also choose to repay obligations under secured indebtedness before repaying member loans originated through the Lending Club platform because the borrower members have no collateral at risk in the case of the member loans. A lender member will not be made aware of any additional debt incurred by a borrower member, or whether such debt is secured.

The member loans do not contain any cross-default or similar provisions. If borrower members default on their debt obligations other than on the member loans, the ability to collect on member loans on which your Notes are dependent may be substantially impaired.

 

The member loans do not contain cross-default provisions. A cross-default provision makes a default under certain debt of a borrower member an automatic default on other debt of that borrower member. Because the member loans do not contain cross-default provisions, a borrower member’s loan will not be placed automatically in default upon that borrower member’s default on any of the borrower member’s other debt obligations, unless there are independent grounds for a default on the member loan. The member loans will not be referred to a third-party collection agency for collection because of a borrower member’s default on debt obligations other than the member loans. If a borrower member defaults on debt obligations owed to a third party and continues to satisfy payment obligations under the member loans, the third party may seize the borrower’s assets or pursue other legal action against the borrower member before the borrower member defaults on the member loans. Payments on Notes may be substantially reduced if the borrower member subsequently defaults on the member loans, and you may be unable to recoup any or all of your expected principal and interest payments on those Notes.

 

Borrower members may seek the protection of debtor relief under federal bankruptcy or state insolvency laws, which may result in the nonpayment of your Notes.

 

Borrower members may seek protection under federal bankruptcy law or similar laws. If a borrower member files for bankruptcy (or becomes the subject of an involuntary petition), a stay will go into effect that will automatically put any pending collection actions on hold and prevent further collection action absent bankruptcy court approval. If we receive notice that a borrower member has filed for protection under the federal bankruptcy laws, or has become the subject of an involuntary bankruptcy petition, we will put the borrower member’s loan account into “bankruptcy status.” When we put a member loan into bankruptcy status, we terminate automatic monthly ACH debits and do not undertake collection activity without bankruptcy court approval. Whether any payment will ultimately be made or received on a member loan after a bankruptcy status is declared depends on the borrower member’s particular financial situation. It is possible that the borrower member’s personal liability on the member loan will be discharged in bankruptcy. In most cases involving the bankruptcy of a borrower member, unsecured creditors, including Lending Club as holder of the member loans, will receive only a fraction of any amount outstanding on their member loans, if anything. See “About the Loan Platform — How the Lending Club Platform Operates — Post-Closing Loan Servicing and Collection.”

 

Federal law entitles borrower members who enter active military service to an interest rate cap and certain other rights that may inhibit the ability to collect on loans and reduce the amount of interest paid on the corresponding Notes.

 

Federal law provides borrower members on active military service with rights that may delay or impair our ability to collect on a borrower member loan corresponding to your Note. The Servicemembers Civil Relief Act requires that the interest rate on preexisting debts, such as member loans, be set at no more than 6% while the qualified servicemember or reservist is on active duty. A holder of a Note that is dependent on such a member loan will not receive the difference between 6% and the original stated interest rate for the member loan during any such period. This law also permits courts to stay proceedings and execution of judgments against servicemembers and reservists on active duty, which may delay recovery on any member loans in default, and, accordingly, payments on Notes that are dependent on these member loans. If there are any amounts under such a member loan still due and owing to Lending Club after the final maturity of the Notes that correspond to the member loan, we will have no further obligation to make payments on the Notes, even if we later receive payments after the final maturity of the Notes. We do not take military service into account in assigning loan grades to borrower member loan requests. See “About Lending Club — Government Regulation — Licensing and Consumer Protection Laws — Servicemembers Civil Relief Act.”

The death of a borrower member may substantially impair your ability to recoup the full purchase price of Notes that are dependent on the member loan to that borrower member or to receive the interest payments that you expect to receive on the Notes.

 

All borrower members are individuals. If a borrower member with outstanding obligations under a member loan dies while the member loan is outstanding, generally, we will seek to work with the executor of the estate of the borrower member to obtain repayment of the member loan. However, the borrower member’s estate may not contain sufficient assets to repay the member loan on which your Note is dependent. In addition, if a borrower member dies near the end of the term of a member loan, it is unlikely that any further payments will be made on the Notes corresponding to such member loan, because the time required for the probate of the estate may extend beyond the initial maturity date and the final maturity date of the Notes.

 

The Lending Club platform allows a borrower member to prepay a member loan at any time without penalty. Borrower member loan prepayments will extinguish or limit your ability to receive additional interest payments on a Note.

 

Borrower member loan prepayment occurs when a borrower member decides to pay some or all of the principal amount on a member loan earlier than originally scheduled. A borrower member may decide to prepay all or a portion of the remaining principal amount at any time without penalty. In the event of a prepayment of the entire remaining unpaid principal amount of a member loan on which your Notes are dependent, you will receive your share of such prepayment but further interest will not accrue after the date on which the payment is made. If a borrower member prepays a portion of the remaining unpaid principal balance on a member loan on which your Notes are dependent, the term of the member loan will not change, but interest will cease to accrue on the prepaid portion and future monthly payment amounts, including interest amounts, will be reduced. If a borrower member prepays a member loan in full or in part, you will not receive all of the interest payments that you originally expected to receive on Notes that are dependent on that member loan, and you may not be able to find a similar rate of return on another investment at the time at which the member loan is prepaid. Prepayments are subject to our 1.00% service charge, even if the prepayment occurs immediately after issuance of your Note. See “About the Loan Platform — Description of the Notes — Prepayments.”

 

Prevailing interest rates may change during the term of the member loan on which your Note is dependent. If this occurs, you may receive less value from your purchase of the Note in comparison to other ways you may invest your money. Additionally, borrower members may prepay their member loans due to changes in interest rates, and you may not be able to redeploy the amounts you receive from prepayments in a way that offers you the return you expected to receive from the Notes.

 

The member loans on which the Notes are dependent have a term of three years and bear fixed, not floating, rates of interest. If prevailing interest rates increase, the interest rates on Notes you purchase might be less than the rate of return you could earn if you invested your purchase price in a different investment.

 

While you may still receive a return on your purchase price for the Notes through the receipt of amounts equal to the interest portion of a borrower member’s payments on the member loan, if prevailing interest rates exceed the rate of interest payable on the member loan, the payments you receive during the term of the Note may not reflect the full opportunity cost to you when you take into account factors such as the time value of money.

 

There is no prepayment penalty for borrower members who prepay their member loans. If prevailing interest rates on consumer loans decrease, borrower members may choose to prepay their member loans with money they borrow from other sources or other resources, and you may not receive the interest payments on Notes dependent on those member loans that you expect to receive or be able to find an alternative use of your money to realize a similar rate of return at the time at which the Note is prepaid.

 

Lender member funds in a Lending Club lender member account do not earn interest.

 

Your Lending Club lender member account represents an interest in a pooled bank account that does not earn interest. For a description of Lending Club member accounts, see “About the Loan Platform — How the Lending Club Platform Operates — Loan Funding and Treatment of Lender Member Balances.”

 

The Notes will not be listed on any securities exchange, will not be transferable except through the Note Trading Platform by FOLIOfn, and must be held only by Lending Club lender members. You should be prepared to hold the Notes you purchase until they mature.

 

The Notes will not be listed on any securities exchange. All Notes must be held by Lending Club lender members. The Notes will not be transferable except through the Note Trading Platform by FOLIO fn . There can be no assurance that a market for Notes will develop on the trading platform, or that the platform will continue to operate. Therefore, lender members must be prepared to hold their Notes to maturity. See “About the Loan Platform — Trading Platform.”

 

The U.S. federal income tax consequences of an investment in the Notes are uncertain.

 

No authority directly addresses the treatment of the Notes or instruments similar to the Notes for U.S. federal income tax purposes. Although the matter is not free from doubt, Lending Club intends to treat the Notes as indebtedness of Lending Club for U.S. federal income tax purposes. As a result of such treatment, the Notes will have original issue discount, or OID, for U.S. federal income tax purposes because payments on the Notes are dependent on payments on the corresponding member loan. Further, a holder of a Note will be required to include the OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest being paid on the Note), regardless of such holder’s regular method of accounting. This characterization is not binding on the IRS, and the IRS may take contrary positions. Any differing treatment of the Notes could significantly affect the amount, timing and character of income, gain or loss in respect of an investment in the Notes. Accordingly, all prospective purchasers of the Notes are advised to consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase and ownership of the Notes (including any possible differing treatments of the Notes). For a discussion of the U.S. federal income tax consequences of an investment in the Notes, see “About the Loan Platform — Certain U.S. Federal Income Tax Considerations.”

 

We face a contingent liability for potential securities law violations in respect of loans sold to our lender members from May 2007 until April 7, 2008. This contingent liability may impair our ability to operate our platform and service the member loans that correspond to your Notes.

 

Loans sold to lender members through our platform from our launch in May 2007 until April 7, 2008 may be viewed as involving an offering of securities that was not registered or qualified under federal or state securities laws. If the sale of these loans were viewed as an unregistered offering of securities, our lender members who hold these loans may be entitled to rescind their purchase and be paid their unpaid principal amount of the loans plus statutory interest. As of June 30, 2008, the aggregate principal balance of loans purchased through our platform by purchasers not affiliated with Lending Club was $7.3 million. We have not recorded an accrued loss contingency in respect of this contingent liability, although we intend to continue to monitor the situation. Generally, the federal statute of limitations for noncompliance with the requirement to register securities under the Securities Act is one year from the violation. If a significant number of our lender members sought rescission, or if we were subject to a class action securities lawsuit, our ability to maintain our platform and service the member loans to which your Notes correspond may be adversely affected.

 

We have a limited operating history. As an online company in the early stages of development, we face increased risks, uncertainties, expenses and difficulties.

 

If we are successful, the number of borrower members and lender members and the volume of member loans originated through the Lending Club platform will increase, which will require us to increase our facilities, personnel and infrastructure in order to accommodate the greater servicing obligations and demands on the Lending Club platform. The Lending Club platform is dependent upon our website in order to maintain current listings and transactions in the member loans and Notes. We must constantly add new hardware and update our software and website, expand our customer support services and add new employees to maintain the operations of the Lending Club platform, as well as to satisfy our servicing obligations on the member loans and make payments on the Notes.

If we are unable to increase the capacity of the Lending Club platform and maintain the necessary infrastructure, you may experience delays in receipt of payments on your Notes and periodic downtime of our systems.

 

If we are unable to increase transaction volumes, our business and results of operations will be affected adversely.

 

To succeed, we must increase transaction volumes on the Lending Club platform by attracting a large number of borrower members and lender members in a cost-effective manner, many of whom have not previously participated in social lending. We have experienced a high number of inquiries from potential borrower members who do not meet our criteria for submitting a member loan request. We have also experienced from time to time borrower member loan requests for amounts that exceed the aggregate amount of lender member purchase commitments. We have relied on our credit facilities with third parties, such as Silicon Valley Bank (“SVB”), Gold Hill Venture Lending 03, LP (“Gold Hill”), and other lenders to borrow funds which we used to participate in the platform as a lender to partially address the shortfall between borrower member loan requests and lender member purchase commitments. All member loans are obligations of borrower members to Lending Club, and we issue Notes to lender members who fund a corresponding member loan, or portion of the member loan, originated through our platform. When we participate in the platform as a lender, we continue to directly hold the member loan, or portion of the member loan, we have funded and do not issue Notes corresponding to such member loans for our own account. We expect these shortfalls to continue for the foreseeable future, and our ability to obtain funds to help address this shortfall may be subject to broader developments in the credit markets, which are currently experiencing unprecedented volatility and disruption. If we are not able to attract qualified borrower members and sufficient lender member purchase commitments, we will not be able to increase our transaction volumes. Additionally, we rely on a variety of methods to drive traffic to our website. If we are unable to use any of our current or future marketing initiatives or the cost of these initiatives were to significantly increase, we may not be able to attract new members in a cost-effective manner and, as a result, our revenue and results of operations would be affected adversely, which may impair our ability to maintain the Lending Club platform.

 

We will need to raise substantial additional capital to fund our operations, and if we fail to obtain additional funding, we may be unable to continue operations. In connection with their audit for the year ended March 31, 2008, our independent auditors raised substantial doubt about our ability to continue as a going concern due to our recurring losses from operations since inception.

 

At this early stage in our development, we have funded substantially all of our operations with proceeds from venture capital financings, private placements and bank financings. In order to continue the development of the Lending Club platform, we will require substantial additional funds. For example, for the fiscal year ended March 31, 2008, our cash outflow to fund operations was approximately $6.0 million. In addition, in connection with their audit for the year ended March 31, 2008, our independent auditors raised substantial doubt about our ability to continue as a going concern due to our recurring losses from operations since inception. To strengthen our financial position, on September 29, 2008, we completed a $4.1 million equity financing round, and $1.0 million of our convertible notes were converted into equity. To meet our financing requirements in the future, we may raise funds through equity offerings, debt financings or strategic alliances. Raising additional funds may involve agreements or covenants that restrict our business activities and options. Additional funding may not be available to us on favorable terms, or at all. If we are unable to obtain additional funds, we may be forced to reduce or terminate our operations.

 

The market in which we participate is competitive and, if we do not compete effectively, our operating results could be harmed.

 

The consumer lending market is competitive and rapidly changing. With the introduction of new technologies and the influx of new entrants, we expect competition to persist and intensify in the future, which could harm our ability to increase volume on the Lending Club platform.

 

Our principal competitors include major banking institutions, credit unions, credit card issuers and other consumer finance companies, as well as other social lending platforms, including Prosper Marketplace, Virgin Money and Zopa. Competition could result in reduced volumes, reduced fees or the failure of our social

lending platform to achieve or maintain more widespread market acceptance, any of which could harm our business. In addition, in the future we may experience new competition from more established Internet companies, such as eBay Inc., Google Inc. or Yahoo! Inc., possessing large, existing customer bases, substantial financial resources and established distribution channels. If any of these companies or any major financial institution decided to enter the social lending business, acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively could be significantly compromised and our operating results could be harmed.

 

Most of our current or potential competitors have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their platforms and distribution channels. Our potential competitors may also have longer operating histories, more extensive customer bases, greater brand recognition and broader customer relationships than we have. These competitors may be better able to develop new products, to respond quickly to new technologies and to undertake more extensive marketing campaigns. Our industry is driven by constant innovation. If we are unable to compete with such companies and meet the need for innovation, the demand for our platform could stagnate or substantially decline.

 

If we fail to promote and maintain our brand in a cost-effective manner, we may lose market share and our revenue may decrease.

 

We believe that developing and maintaining awareness of the Lending Club brand in a cost-effective manner is critical to achieving widespread acceptance of social lending through Lending Club and attracting new members. Furthermore, we believe that the importance of brand recognition will increase as competition in the social lending industry increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and the member experience on the Lending Club platform. Historically, our efforts to build our brand have involved significant expense, and it is likely that our future marketing efforts will require us to incur significant additional expenses. These brand promotion activities may not yield increased revenues and, even if they do, any revenue increases may not offset the expenses we incur to promote our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may lose our existing members to our competitors or be unable to attract new members, which would cause our revenue to decrease and may impair our ability to maintain the Lending Club platform.

 

We have incurred net losses in the past and expect to incur net losses in the future. If we become insolvent or bankrupt, you may lose your investment.

 

We have incurred net losses in the past and we expect to incur net losses in the future. As of June 30, 2008, our accumulated deficit was $11.5 million and our total stockholders’ deficit was $8.2 million. Our net loss for the quarter ended June 30, 2008 was $3.7 million, and our net loss for the year ended March 31, 2008 was $7.0 million. We have not been profitable since our inception, and we may not become profitable. In addition, we expect our operating expenses to increase in the future as we expand our operations. If our operating expenses exceed our expectations, our financial performance could be adversely affected. If our revenue does not grow to offset these increased expenses, we may never become profitable. In future periods, we may not have any revenue growth, or our revenue could decline. Our failure to become profitable could impair the operations of the Lending Club platform by limiting our access to working capital to operate the platform. If we were to become insolvent or bankrupt, an event of default would occur under the terms of the Notes, and you may lose your investment.

 

Our substantial senior secured indebtedness could adversely affect our financial performance, ability to finance future operations, and our special, limited obligations in respect of the Notes.

 

We have incurred substantial senior secured indebtedness under bank credit facilities with SVB and Gold Hill and other notes issued to other investors. The operating and financial restrictions in these debt agreements, as well as the required debt service and repayment obligations thereunder, could adversely affect our financial performance. In addition, our ability to borrow additional funds or otherwise finance our future operations will be limited by the existence and terms of the debt agreements. If we are unable to repay our obligations other than the Notes and

otherwise finance our future operations, such inability will have an adverse impact on our ability to operate our platform and service the Notes, which could adversely affect the payments you receive on the Notes.

 

Our credit agreements contain restrictive covenants and other limitations that, if not complied with, could result in a default under the credit agreements and an acceleration of our obligations under the credit agreements. We are not certain whether we would have, or be able to obtain, sufficient funds to make such accelerated payments, and a failure to do so could adversely affect our ability to operate our platform and service the Notes, which could adversely affect the payments you receive on the Notes.

 

In the past, we violated certain covenants under our SVB and Gold Hill facilities because we stopped accepting lender member commitments during the SEC registration process and also because we did not maintain our primary operating account with SVB. Although the continuing existence of these covenant violations constituted events of default under the facilities, we entered into forbearance agreements with SVB and Gold Hill, under which they agreed to forbear from exercising their rights against us with respect to these events of default. As of the date of effectiveness of the registration statement of which this prospectus forms a part, amendments to these facilities will become effective, whereby SVB and Gold Hill will waive our past covenant violations and will consent to our new operating structure.

 

We have secured our debt facilities by pledging all of our assets except our intellectual property rights, the corresponding member loans and all payments we receive in respect of corresponding member loans.

 

In order to induce SVB, Gold Hill and other investors to enter into credit agreements and other debt agreements with us, we have pledged all of our assets except our intellectual property rights, the corresponding member loan promissory notes and payments we receive in respect of corresponding member loans to SVB, Gold Hill and other investors to secure our repayment obligations under these credit agreements and other debt agreements. If we are unable to repay any amounts owed under these credit agreements or other debt agreements, we could lose some or all of our assets and be forced to discontinue our business operations. In addition, because our obligations to SVB, Gold Hill and other investors are secured, collectively, with a first priority lien against such assets, we may have difficulty obtaining additional debt financing from another lender or obtaining new debt financing on terms favorable to us, because a new lender may have to be willing to be subordinate to SVB, Gold Hill and other investors. Moreover, as of September 30, 2008 we had only $1.4 million of the borrowing capacity available under these facilities.

 

The Notes will rank effectively junior to our existing secured indebtedness and to any future secured indebtedness to the extent of the collateral for that secured indebtedness. The Notes do not limit or prevent our incurring future indebtedness, whether unsecured or secured by all or a portion of our assets.

 

Our arrangements for backup servicing are limited. If we fail to maintain operations, you will experience a delay and increased cost in respect of your expected principal and interest payments on your Notes, and we may be unable to collect and process repayments from borrower members.

 

We have made arrangements for only limited backup servicing. If our platform were to fail or we became insolvent, we would attempt to transfer our member loan servicing obligations to a third party back-up servicer. There can be no assurance that this back-up servicer will be able to adequately perform the servicing of the outstanding member loans. If this back-up servicer assumes the servicing of the member loans, the back-up servicer will impose additional servicing fees, reducing the amounts available for payments on the Notes. Additionally, transferring these servicing obligations to our back-up servicer may result in delays in the processing and recovery of information with respect to amounts owed on the member loans or, if the Lending Club platform becomes inoperable, may prevent us from servicing the member loans and making principal and interest payments on the Notes. If our back-up servicer is not able to service the member loans effectively, lender members’ ability to receive principal and interest payments on their Notes may be substantially impaired.

If we were to become subject to a bankruptcy or similar proceeding, the rights of the holders of the Notes could be uncertain, and payments on the Notes may be limited and suspended or stopped. The Notes are unsecured and holders of the Notes do not have a security interest in the corresponding member loans or the proceeds of those corresponding member loans. The recovery, if any, of a holder on a Note may be substantially delayed and substantially less than the principal and interest due and to become due on the Note. Even funds held by Lending Club in trust for the holders of Notes may potentially be at risk.

 

If Lending Club were to become subject to a bankruptcy or similar proceeding, the recovery, if any, of a holder of a Note may be substantially delayed in time and may be substantially less in amount than the principal and interest due and to become due on the Note. Specifically, the following consequences may occur:

 

A bankruptcy or similar proceeding of Lending Club may cause delays in borrower member payments.   Borrower members may delay payments to Lending Club on account of member loans because of the uncertainties occasioned by a bankruptcy or similar proceeding of Lending Club, even if the borrower members have no legal right to do so, and such delay would reduce, at least for a time, the funds that might otherwise be available to pay the Notes corresponding to those member loans.

 

A bankruptcy or similar proceeding of Lending Club may cause delays in payments on Notes.   The commencement of the bankruptcy or similar proceeding may, as a matter of law, prevent Lending Club from making regular payments on the Notes, even if the funds to make such payments are available. Because a bankruptcy or similar proceeding may take months or years to complete, the suspension of payment may effectively reduce the value of any recovery that a holder of a Note may receive (and no such recovery can be assured) by the time any recovery is available.

 

Interest accruing upon and following a bankruptcy or similar proceeding of Lending Club may not be paid.   In bankruptcy or similar proceeding of Lending Club, interest accruing on the Notes during the proceeding may not be part of the allowed claim of a holder of a Note. If the holder of a Note receives a recovery on the Note (and no such recovery can be assured), any such recovery may be based on, and limited to, the claim of the holder of the Note for principal and for interest accrued up to the date of the bankruptcy or similar proceeding, but not thereafter. Because a bankruptcy or similar proceeding may take months or years to complete, a claim based on principal and on interest only up to the start of the bankruptcy or similar proceeding may be substantially less than a claim based on principal and on interest through the end of the bankruptcy or similar proceeding.

 

In a bankruptcy or similar proceeding of Lending Club, there may be uncertainty regarding whether a holder of a Note has any priority right to payment from the corresponding member loan .  The Notes are unsecured and holders of the Notes do not have a security interest in the corresponding member loans or the proceeds of those corresponding member loans. Accordingly, the holder of a Note may be required to share the proceeds of the corresponding member loan with Lending Club’s other creditors. If such sharing of proceeds is deemed appropriate, those proceeds that are either held by Lending Club in the clearing account at the time of the bankruptcy or similar proceeding of Lending Club, or not yet received by Lending Club from borrower members at the time of the commencement of the bankruptcy or similar proceeding, may be at greater risk than those proceeds that are already held by Lending Club in the ITF account at the time of the bankruptcy or similar proceeding. To the extent that proceeds of the corresponding member loan would be shared with other creditors of Lending Club, any secured or priority rights of such other creditors may cause the proceeds to be distributed to such other creditors before any distribution is made to you on your Note. For a more detailed description of the clearing account and the ITF account, see “How the Lending Club Platform Operates — Post-Closing Loan Servicing and Collection.”

 

In a bankruptcy or similar proceeding of Lending Club, there may be uncertainty regarding whether a holder of a Note has any right of payment from assets of Lending Club other than the corresponding member loan .  In a bankruptcy or similar proceeding of Lending Club, it is possible that a Note could be deemed to have a right of payment only from proceeds of the corresponding member loan and not from any other assets of Lending Club, in which case the holder of the Note may not be entitled to share the proceeds of such other assets of Lending Club with other creditors of Lending Club, whether or not, as described above, such other creditors would be entitled to share in the proceeds of the member loan corresponding to the Note. Alternatively, it is possible that a Note could be deemed to have a right of payment from both the member loan corresponding to the Note and from some or all other assets of Lending Club, for example, based upon the automatic acceleration of the principal obligations on the Note upon the commencement of a bankruptcy or

similar proceeding, in which case the holder of the Note may be entitled to share the proceeds of such other assets of Lending Club with other creditors of Lending Club, whether or not, as described above, such other creditors would be entitled to share in the proceeds of the member loan corresponding to the Note. See “Description of the Notes — Events of Default.” To the extent that proceeds of such other assets would be shared with other creditors of Lending Club, any secured or priority rights of such other creditors may cause the proceeds to be distributed to such other creditors before any distribution is made to you on your Note.

 

In a bankruptcy or similar proceeding of Lending Club, there may be uncertainty regarding the rights of a holder of a Note, if any, to payment from funds in the clearing account .  If a borrower member has paid Lending Club on a member loan corresponding to a Note before a bankruptcy or similar proceeding of Lending Club is commenced, and those funds are held in the clearing account and have not been used by Lending Club to make payments on the Note as of the date the bankruptcy or similar proceeding is commenced, there can be no assurance that Lending Club will or will be able to use such funds to make payments on the Note. Other creditors of Lending Club may be deemed to have rights to such funds that are equal to or greater than the rights of the holder of the Note. For a more detailed description of the clearing account, see “How the Lending Club Platform Operates — Post-Closing Loan Servicing and Collection.”

 

In a bankruptcy or similar proceeding of Lending Club, there may be uncertainty regarding the rights of a holder of a Note, if any, to access funds in the ITF account .  If a borrower has paid Lending Club on a member loan corresponding to a Note before a bankruptcy or similar proceeding of Lending Club is commenced, and those funds have been used by Lending Club to make payments on the Note prior to the date the bankruptcy or similar proceeding is commenced, but the payments on the Note continue to be held by Lending Club in an ITF account, there can be no assurance that the holder of the Note will have immediate access to the funds constituting the payment or that the funds constituting the payment will ultimately be released to the holder of the Note. While the Declaration of Trust states that funds in the ITF account are trust property and are not intended to be property of Lending Club or subject to claims of Lending Club’s creditors generally, there can be no assurance that, if the matter were to be litigated, such litigation would not delay or prevent the holder of a Note from accessing the portion of those funds in which the holder has an interest. For a more detailed description of the ITF account, see “How the Lending Club Platform Operates — Post-Closing Loan Servicing and Collection.”

 

In a bankruptcy or similar proceeding of Lending Club, there may be uncertainty regarding the rights of a holder of a Note, if any, to the return of the purchase price of a Note if the corresponding member loan has not been funded .  If the purchase price of a Note is paid to Lending Club and a bankruptcy or similar proceeding of Lending Club is commenced, the holder of the Note may not be able to obtain a return of the funds constituting the purchase price, even if the member loan corresponding to the Note has not been funded as of the date that the bankruptcy or similar proceeding is commenced and even if the funds are held by Lending Club in the ITF account. For a more detailed description of the funding of member loans, see “How the Lending Club Platform Operates — Purchases of Notes and Loan Closings.”

 

In a bankruptcy or similar proceeding of Lending Club, the holder of a Note may be delayed or prevented from enforcing Lending Club’s repurchase obligations in cases of confirmed identity fraud.   In a bankruptcy or similar proceeding of Lending Club, any right of a holder of Note to require Lending Club to repurchase the Note as a result of a confirmed identity fraud incident may not be specifically enforced, and such holder’s claim for such repurchase may be treated less favorably than a general unsecured obligation of Lending Club as described and subject to the limitations in this “Risks Related to Lending Club and the Lending Club Platform — If we were to become subject to a bankruptcy or similar proceeding” section. See “Description of the Notes — Mandatory Redemption” for further information on the repurchase obligation of Lending Club upon a confirmed identity fraud incident.

 

In a bankruptcy or similar proceeding of Lending Club, the implementation of back-up servicing arrangements may be delayed or prevented.   In a bankruptcy or similar proceeding of Lending Club, our ability to transfer servicing obligations to our back-up servicer may be limited and subject to the approval of the bankruptcy court or other presiding authority. The bankruptcy process may delay or prevent the implementation of back-up servicing, which may impair the collection of member loans to the detriment of the Notes.

We rely on third-party banks to disburse member loan proceeds and process member loan payments, and we rely on third-party computer hardware and software. If we are unable to continue utilizing these services, our business and ability to service the member loans on which the Notes are dependent may be adversely affected.

 

We rely on a third-party bank to disburse member loan amounts. Additionally, because we are not a bank, we cannot belong to and directly access the Automated Clearing House (“ACH”) payment network, and we must rely on an FDIC-insured depository institution to process our transactions, including loan payments and remittances to our Noteholders. We currently use Wells Fargo Bank, N.A. for these purposes. Under the ACH rules, if we experience a high rate of reversed transactions (known as “chargebacks”), we may be subject to sanctions and potentially disqualified from using the system to process payments. We also rely on computer hardware purchased and software licensed from third parties to operate our platform, including payment processing software licensed from BankServ. This hardware and software may not continue to be available on commercially reasonable terms, or at all. If we cannot continue to obtain these services, or if we cannot transition to another service provider quickly, our ability to process payments and operate the Lending Club platform could suffer, and your receipt of payments on the Notes could be delayed or impaired.

 

If the security of our members’ confidential information stored in our systems is breached or otherwise subjected to unauthorized access, your secure information may be stolen, our reputation may be harmed, and we may be exposed to liability.

 

Our platform stores our borrower members and lender members’ bank information and other personally-identifiable sensitive data. Any accidental or willful security breaches or other unauthorized access could cause your secure information to be stolen and used for criminal purposes. Security breaches or unauthorized access to secure information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a third party or disaffected employee obtains unauthorized access to any of our members’ data, our relationships with our members will be severely damaged, and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we and our third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, many states have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause our members to lose confidence in the effectiveness of our data security measures. Any security breach, whether actual or perceived, would harm our reputation, and we could lose members.

 

Our ability to service the member loans or maintain accurate accounts may be adversely affected by computer viruses, physical or electronic break-ins and similar disruptions.

 

The highly-automated nature of the Lending Club platform may make it an attractive target and potentially vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. If a computer hacker were able to infiltrate the Lending Club platform, you would be subject to an increased risk of fraud or borrower identity theft, and you may not receive the principal or interest payments that you expect to receive on any Notes you were fraudulently induced to purchase. Hackers might also disrupt the accurate processing and posting of payments to accounts such as yours on the platform, or cause the destruction of data and thereby undermine your rights to repayment of the Notes you have purchased. While we have taken steps to prevent hackers from accessing the Lending Club platform, if we are unable to prevent hacker access, your ability to receive the principal and interest payments that you expect to receive on Notes you purchase and our ability to fulfill our servicing obligations and to maintain the Lending Club platform would be adversely affected.

Any significant disruption in service on our website or in our computer systems could reduce the attractiveness of our platform and result in a loss of members.

 

If a catastrophic event resulted in a platform outage and physical data loss, our ability to perform our servicing obligations would be materially and adversely affected. The satisfactory performance, reliability and availability of our technology and our underlying network infrastructure are critical to our operations, level of customer service, reputation and ability to attract new members and retain existing members. Our system hardware is hosted in a hosting facility located in Santa Clara, CA, owned and operated by SAVVIS. We also maintain a real time backup system located in Washington, D.C. SAVVIS does not guarantee that our members’ access to our website will be uninterrupted, error-free or secure. Our operations depend on SAVVIS’s ability to protect their and our systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, air quality, temperature, humidity and other environmental concerns, computer viruses or other attempts to harm our systems, criminal acts and similar events. If our arrangement with SAVVIS is terminated, or there is a lapse of service or damage to SAVVIS facilities, we could experience interruptions in our service as well as delays and additional expense in arranging new facilities. Any interruptions or delays in our service, whether as a result of SAVVIS or other third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with our members and our reputation. Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage at a SAVVIS facility. These factors could prevent us from processing or posting payments on the member loans or the Notes, damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause members to abandon the Lending Club platform, any of which could adversely affect our business, financial condition and results of operations.

 

Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees whom we need to support our business.

 

Competition for highly skilled technical and financial personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.

 

In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to serve Lending Club members could diminish, resulting in a material adverse effect on our business.

 

Our growth could strain our personnel resources and infrastructure, and if we are unable to implement appropriate controls and procedures to manage our growth, we may not be able to successfully implement our business plan.

 

Our growth in headcount and operations since our inception has placed, and will continue to place, to the extent that we are able to sustain such growth, a significant strain on our management and our administrative, operational and financial reporting infrastructure.

 

Our success will depend in part on the ability of our senior management to manage the growth we achieve effectively. To do so, we must continue to hire, train and manage new employees as needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational and financial controls and update our reporting procedures and systems. The addition of new employees and the system development that we anticipate will be necessary to manage our growth will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully manage our growth, we will be unable to execute our business plan.

If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.

 

Our future depends, in part, on our ability to attract and retain key personnel. Our future also depends on the continued contributions of our executive officers and other key technical personnel, each of whom would be difficult to replace. In particular, Renaud Laplanche, our Founder and Chief Executive Officer, and John G. Donovan, our Chief Operating Officer, are critical to the management of our business and operations and the development of our strategic direction. The loss of the services of Mr. Laplanche, Mr. Donovan or other executive officers or key personnel and the process to replace any of our key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

 

It may be difficult and costly to protect our intellectual property rights, and we may not be able to ensure their protection.

 

Our ability to maintain the Lending Club platform and arrange member loans depends, in part, upon our proprietary technology, including our proprietary LendingMatch system. We have applied for patent protection for LendingMatch. We may be unable to protect our proprietary technology effectively, however, which would allow competitors to duplicate our products and adversely affect our ability to compete with them. A third party may attempt to reverse engineer or otherwise obtain and use our proprietary technology without our consent. In addition, the Lending Club platform may infringe upon claims of third-party patents, and we may face intellectual property challenges from such other parties. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes. Furthermore, our technology may become obsolete, and there is no guarantee that we will be able to successfully develop, obtain or use new technologies to adapt the Lending Club platform to compete with other person-to-person lending platforms as they develop. If we cannot protect our proprietary technology from intellectual property challenges, or if the platform becomes obsolete, our ability to maintain the platform, arrange member loans or perform our servicing obligations on the member loans could be adversely affected.

 

Purchasers of Notes will have no control over Lending Club and will not be able to influence Lending Club corporate matters.

 

We are not offering any equity in this offering. Purchasers of Notes offered through the Lending Club platform will have no equity interest in Lending Club and no ability to vote on or influence Lending Club corporate decisions. As a result, our stockholders will continue to exercise 100% voting control over all Lending Club corporate matters, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets.

 

The Lending Club platform is a novel approach to borrowing that may fail to comply with borrower protection laws such as state usury laws, other interest rate limitations or federal and state consumer protection laws such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Fair Debt Collection Practices Act and their state counterparts. Borrower members may make counterclaims regarding the enforceability of their obligations after collection actions have commenced, or otherwise seek damages under these laws. Compliance with such regimes is also costly and burdensome.

 

The Lending Club platform operates a novel program that must comply with regulatory regimes applicable to all consumer credit transactions. The novelty of our platform means compliance with various aspect of such laws is untested. Certain state laws generally regulate interest rates and other charges and require certain disclosures. In addition, other state laws, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of the member loans. Our platform is also subject to other federal and state laws, such as:

 

 

 

We may not always have been, and may not always be, in compliance with these laws. Compliance with these requirements is also costly, time-consuming and limits our operational flexibility. See “About Lending Club — Government Regulation” for more information regarding governmental regulation of the Lending Club platform.

 

Noncompliance with laws and regulations may impair our ability to arrange or service member loans.

 

Generally, failure to comply with the laws and regulatory requirements applicable to our business may, among other things, limit our, or a collection agency’s, ability to collect all or part of the principal amount of or interest on the member loans on which the Notes are dependent and, in addition, could subject us to damages, revocation of required licenses or other authorities, class action lawsuits, administrative enforcement actions, and civil and criminal liability, which may harm our business and ability to maintain the Lending Club platform and may result in borrower members rescinding their member loans.

 

Where applicable, we seek to comply with state small loan, loan broker, servicing and similar statutes. Currently, we do not provide services to borrowers in Idaho, Indiana, Iowa, Maine, Nebraska, North Carolina, North Dakota and Tennessee. In all other U.S. jurisdictions with licensing or other requirements we believe may be applicable to make loans, we have obtained any necessary licenses or comply with the relevant requirements. Nevertheless, if we are found to not comply with applicable laws, we could lose one or more of our licenses or authorizations or face other sanctions, which may have an adverse effect on our ability to continue to arrange member loans through the platform, perform our servicing obligations or make the Lending Club platform available to borrower members in particular states, which may impair your ability to receive the payments of principal and interest on your Notes that you expect to receive. See “About Lending Club — Government Regulation” for more information regarding governmental regulation of the Lending Club platform.

 

We rely on our agreement with WebBank to lend to qualified borrower members on a uniform basis throughout the United States. If our relationship with WebBank were to end, we may need to rely on individual state lending licenses to arrange member loans.

 

Borrower member loan requests take the form of an application to WebBank, which cooperates with us to lend to qualified Lending Club borrower members and allows our platform to be available to borrowers on a uniform basis throughout the United States, except that we do not currently offer member loans in Idaho, Indiana, Iowa, Maine, Nebraska, North Carolina, North Dakota and Tennessee. If our relationship with WebBank were to end, we may need to rely on individual state lending licenses to arrange member loans. Because we do not currently possess state lending licenses in every U.S. state, we may be required to discontinue lending or limit the rates of interest charged on member loans in some states. We may face increased costs and compliance burdens if our agreement with WebBank terminated.

 

Several lawsuits have sought to recharacterize certain loan marketers and other originators as lenders. If litigation on similar theories were successful against us, member loans originated through the Lending Club platform could be subject to state consumer protection laws in a greater number of states.

 

Several lawsuits have brought under scrutiny the association between high-interest “payday loan” marketers and out-of-state banks. These lawsuits assert that payday loan marketers use out-of-state lenders in order to evade the consumer protection laws imposed by the states where they do business. Such litigation has sought, successfully

in some instances, to recharacterize the loan marketer as the lender for purposes of state consumer protection law restrictions. Similar civil actions have been brought in the context of gift cards. We believe that our activities are distinguishable from the activities involved in these cases.

 

Additional state consumer protection laws would be applicable to the member loans originated through the Lending Club platform if we were recharacterized as a lender, and the member loans could be voidable or unenforceable. In addition, we could be subject to claims by borrower members, as well as enforcement actions by regulators. Even if we were not required to cease doing business with residents of certain states or to change our business practices to comply with applicable laws and regulations, we could be required to register or obtain licenses or regulatory approvals that could impose a substantial cost on us. To date, no actions have been taken or threatened against us on the theory that we have engaged in unauthorized lending. However, such actions could have a material adverse effect on our business.

 

As Internet commerce develops, federal and state governments may draft and propose new laws to regulate Internet commerce, which may negatively affect our business.

 

As Internet commerce continues to evolve, increasing regulation by federal and state governments becomes more likely. Our business could be negatively affected by the application of existing laws and regulations or the enactment of new laws applicable to social lending. The cost to comply with such laws or regulations could be significant and would increase our operating expenses, and we may be unable to pass along those costs to our members in the form of increased fees. In addition, federal and state governmental or regulatory agencies may decide to impose taxes on services provided over the Internet. These taxes could discourage the use of the Internet as a means of consumer lending, which would adversely affect the viability of the Lending Club platform.

 

Our legal compliance burdens and costs will significantly increase as a result of operating as a public company following the date of this prospectus. Our management will be required to devote substantial time to compliance matters.

 

After the date of this prospectus, we will become a public company and will incur significant legal, accounting and other expenses that we did not incur as a private company. Our management and other personnel will need to devote a substantial amount of time to public company compliance requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, these rules and regulations may make it more expensive for us to obtain director and officer liability insurance coverage and more difficult for us to attract and retain qualified persons to serve as directors or executive officers.

 

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, for the year ending March 31, 2010, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. In order to comply with Section 404, we may incur substantial accounting expense, expend significant management time on compliance-related issues, and hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

If we are unable to successfully address the material weaknesses in our internal control over financial reporting or otherwise maintain effective internal control over financial reporting, our ability to report our financial results on a timely and accurate basis may be adversely affected.

 

Because we have not been a public company before the date of this prospectus, we have not been required to have an audit of our internal control over financial reporting, and our independent registered public accounting firm has not performed such an audit. Nonetheless, on June 6, 2008, our independent registered public accounting firm issued a letter to the Company informing us that, as of March 31, 2007 and 2008, respectively, the Company did not maintain effective controls over the corporate financial reporting process due to an insufficient complement of personnel with a level of accounting knowledge, experience and training in the application of generally accepted accounting principles commensurate with the Company’s corporate financial reporting requirements.

 

Our Chief Executive Officer and our Vice President of Finance and Administration concurred with the assessment contained in that written communication. Beginning with the first quarter of fiscal 2009, we initiated corrective actions to remediate each of our material weaknesses in internal controls over financial reporting. Specifically, in July 2008 we hired an accounting manager to perform our daily accounting functions, and we have purchased additional accounting research tools that will allow our senior accounting personnel to research complex accounting issues effectively, independently from our auditors. As of the date of this prospectus, our management believes that we have remedied each of the material weaknesses in internal controls over financial reporting. However, we cannot be certain that these measures will be sufficient to address the material weaknesses in internal controls over financial reporting, or will result in our ability to maintain adequate controls over our corporate financial processes and reporting in the future. Additionally, our independent registered public accounting firm has not evaluated whether our corrective actions will be sufficient to remediate the material weaknesses in internal controls over financial reporting. If these actions are not successful in addressing these material weaknesses or if we identify additional material weaknesses in the future, our ability to report our financial results on a timely and accurate basis may be adversely affected.

 

If we are required to register under the Investment Company Act, our ability to conduct our business could be materially adversely affected.

 

The Investment Company Act of 1940, or the “Investment Company Act,” contains substantive legal requirements that regulate the manner in which “investment companies” are permitted to conduct their business activities. We believe we have conducted, and we intend to continue to conduct, our business in a manner that does not result in our company being characterized as an investment company. If, however, we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which would materially adversely affect our business, financial condition and results of operations. If we were deemed to be an investment company, we may also attempt to seek exemptive relief from the SEC, which could impose significant costs and delays on our business.

 

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus regarding Lending Club borrower members, credit scoring, FICO scores, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

 

 

 

 

We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from forward-looking statements contained in this prospectus. Forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

Overview

 

Lending Club is an Internet-based social lending platform that enables its borrower members to borrow money and its lender members to purchase Member Payment Dependent Notes, the proceeds of which fund loans made to individual borrower members. Our motto is “Better Rates. Together.” We operate in the space known as “social lending.” As of June 30, 2008, we had 57,820 registered members and had facilitated the issuance of $17.8 million in member loans. Through our participation in the Lending Club platform as a lender, as of June 30, 2008 we have funded approximately $8.6 million of this $17.8 million total. All member loans originated through the Lending Club platform are unsecured and have three-year terms. Although we initially permitted member loans to have principal amounts as low as $500, all member loans currently originated through the Lending Club platform have original principal amounts between $1,000 and $25,000. As of June 30, 2008, the average aggregate Lending Club loan to a single borrower member was approximately $8,440.

 

We aim to operate our platform at low cost to offer interest rates to our borrower members lower than the rates they could obtain through credit cards or traditional banks and to offer interest rates to lender members on Notes that lender members find attractive. Our lending platform operates online only. Our registration, processing and payment systems are automated and electronic. We encourage the use of electronic payments as the preferred means to disburse member loan proceeds and remit cash payments on outstanding member loans. We have no physical branches, no deposit-taking and interest payment activities and extremely limited loan underwriting activities.

 

We generate revenue by charging borrower members loan origination fees and by charging lender members ongoing servicing charges relating to the Notes they have purchased. We also earn interest on member loans to the extent that we fund those member loans ourselves. As our operations ramped up during the fiscal year ended March 31, 2008, and before we temporarily stopped accepting lender member commitments, loan origination volumes grew rapidly, with $1.1 million originated in our fiscal quarter ended September 30, 2007, $4.4 million in our fiscal quarter ended December 31, 2007 and $10.1 million in our fiscal quarter ended March 31, 2008. During the fiscal quarter ended June 30, 2008, origination volume was $2.9 million. Of this $2.9 million in loans originated in this period, we funded approximately $2.0 million through our participation in the platform as a lender.

 

We have positioned ourselves in the social lending market as a platform for higher quality borrowers. To borrow on our platform, borrower members must have:

 

 

 

A borrower member’s debt-to-income ratio is calculated by Lending Club based on (i) the debt (excluding mortgage) reported by a consumer reporting agency; and (ii) the income reported by the borrower member. As described below, the income reported by the borrower member is not verified unless we display an icon in the loan listing indicating otherwise. See “About the Loan Platform — How the Lending Club Platform Operates — Minimum Credit Criteria and Underwriting” below, where the concepts of FICO, debt-to-income ratio, delinquency, recent bankruptcy, collections, open tax liens, open accounts, credit inquiries, utilization of credit limit and credit history are discussed in detail. Lending Club preserves the anonymity of our borrower and lender members, in that lender members and borrower members do not know, and are not permitted to obtain, each other’s actual names

and addresses. Lending Club members conduct transactions using Lending Club screen names. During our member registration process, we verify the identity of members by comparing supplied information against the records of a consumer reporting agency. We also currently require verification of bank accounts. See “About the Loan Platform — How the Lending Club Platform Operates — New Member Registration” below, where our registration procedures are discussed.

 

We offer member loans through our platform to borrower members throughout the United States, except that we do not currently offer member loans in Idaho, Indiana, Iowa, Maine, Nebraska, North Carolina, North Dakota and Tennessee. Because we collect small fees and other revenue from thousands of members, no single borrower member or lender member has accounted for more than 0.1% of our revenue during our fiscal year ended March 31, 2008 or any subsequent fiscal quarter.

 

Borrower members who use our platform must identify their intended use of member loan proceeds in their initial loan request. As of June 30, 2008, among funded member loans, borrower members identified their intended use of loan proceeds as follows:

 

 

We do not verify or monitor a borrower member’s actual use of funds following the funding of a member loan.

 

We attract members to our website, www.lendingclub.com, through a variety of sources. We drive traffic through referrals from other parties (which include online communities, social networks and marketers), through search engine results and through online and offline advertising. We are not dependent on any one source of traffic to our website. As of June 30, 2008, our website was receiving approximately 55,000 unique visitors per month.

 

The Online Social Lending Industry

 

Online social lending is a new approach to consumer finance. Social lending uses an Internet-based network to connect borrower and lender members. The provider of the lending platform, in our case Lending Club, generally provides transactional services for the online network, including screening borrowers for borrowing eligibility and facilitating payments. A social lending platform allows borrower and lender members to connect with each other using a combination of financial and social criteria. Online social lending also entails significantly lower operating costs compared to traditional banking and commercial finance institutions because there are no physical branches and related infrastructure, no deposit-taking and interest payment activities and extremely limited loan underwriting activities. We believe that the interest rates offered to our borrower members through the Lending Club platform are better than the rates those borrower members would pay on outstanding credit card balances or an unsecured loan from a bank, if they were able to obtain such a loan.

 

As an early participant in the development of online social lending, Lending Club views consumer finance delivered through an online social platform as an important new market opportunity. Key drivers of social lending include the following:

 

 

How the Lending Club Platform Operates

 

New Member Registration

 

The first step in using our platform is new member registration. New members first register as general Lending Club members. During registration, members establish online member screen names. New members must agree to the terms and conditions of the Lending Club website, including agreeing to conduct transactions and receive disclosures and other communications electronically. Next, new members have the opportunity to register as borrower members or lender members. Members may also choose to register as both borrowers and lenders. All Lending Club borrower members:

 

 

During borrower and lender registration, we verify the identity of members by comparing supplied names, social security numbers, addresses and telephone numbers against the names, social security numbers, addresses and telephone numbers in the records of a consumer reporting agency, as well as other anti-fraud and identity verification databases. We also currently require each new member to supply information about the member’s bank account including routing numbers, after which we transfer a few cents from the bank account into the member’s newly created Lending Club sub-account to verify that the bank account belongs to the member. Members must then sign in to Lending Club and verify their bank accounts based on the amounts transferred.

 

During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes and a tax withholding statement, and must enter into a note purchase agreement with Lending Club, which will govern all purchases of Notes the lender member makes through our platform. See “About the Loan Platform — Note Purchase Agreement” for a detailed description of the note purchase agreement. Lender members must also meet minimum financial suitability requirements. See “About the Loan Platform — Financial Suitability Requirements.”

 

Likewise, during borrower registration, potential borrower members must agree to a credit profile authorization statement and bank account authorization.

 

Borrower members must also enter into a borrower membership agreement with Lending Club. The borrower membership agreement addresses the registration and loan request processes. In this agreement, the borrower member authorizes us to obtain a consumer report, to use the consumer report for specific purposes and to share certain information about the borrower member with lender members. The borrower member also grants us a limited power of attorney to complete on the borrower member’s behalf, one or more promissory notes in the amounts and on the terms made to the borrower member by WebBank.

 

Borrower members also enter into a loan agreement with WebBank. In the loan agreement, the borrower member authorizes WebBank to obtain and use a consumer report on the borrower member. The loan agreement addresses the application process and the role of lender member’s commitments to purchase Notes corresponding to the borrower loan. The agreement explains that Lending Club may, but is not obligated to, agree to fund all or a portion of a loan to the borrower member. If a loan is extended to the borrower member, the borrower member agrees to be bound by the terms of a promissory note, the form of which is attached as an exhibit to the agreement. The agreement also addresses fees and terms related to a loan and default. The borrower member authorizes WebBank to debit the borrower member’s designated account by ACH transfer for each payment due under the promissory note. The loan agreement also describes the parties’ rights in regard to arbitration. The borrower member agrees that WebBank may assign its right, title and interest in the loan agreement and the borrower member’s promissory notes to Lending Club.

Borrower Loan Requests

 

Borrower members submit loan requests online through the Lending Club website. Loan requests must be between $1,000 and $25,000. Each loan request is an application to WebBank, which lends to qualified Lending Club borrower members and allows our platform to be available to borrower members on a uniform basis throughout the United States, except that we do not currently facilitate member loans in Idaho, Indiana, Iowa, Maine, Nebraska, North Carolina, North Dakota and Tennessee. WebBank is an FDIC-insured, state-chartered industrial bank organized under the laws of Utah that serves as the lender for all member loans originated through our platform.

 

Currently, we allow borrower members to have up to two Lending Club member loans outstanding at any one time, if the borrower member continues to meet our credit criteria. In addition, to apply for a second Lending Club member loan, the borrower member must have already made timely payments on the first member loan for at least six months. If a borrower member applies for a second Lending Club member loan, we do not make any notation in the loan listing to indicate the borrower member’s first member loan, except that the borrower member’s total indebtedness, as reported in the credit report, will reflect the level of debt incurred from the previous loan.

 

Borrower members supply a variety of unverified information that is included in the borrower member loan listings on our website and in the posting reports and sales reports we file with the SEC. This information includes a borrower member’s stated social affiliations (such as educational affiliations), home ownership status, job title, employer and tenure. This information also includes a borrower member’s income, which generally is unverified. If we verify the borrower member’s income, we will display an icon in the loan listing indicating that we have done so. Lender members have no ability to verify borrower member information. See “About the Loan Platform — How the Lending Club Platform Operates — Loan Postings and Borrower Member Information Available on the Lending Club Website.”

 

Minimum Credit Criteria and Underwriting

 

After we receive a loan request, we evaluate whether the prospective borrower member meets the credit criteria agreed upon with WebBank established for the member loans. The credit policy agreed upon with WebBank provides the underwriting criteria for all loans originated through our platform, and the credit policy may not be changed without the consent of WebBank. Under the credit policy, prospective borrower members must have:

 

 

 

 

 

For purposes of the credit policy:

 

 

 

A FICO score is a numeric rating that ranges between 300 and 850 that rates a person’s credit risk based on past credit history and current credit situation. FICO scoring was developed by Fair Isaac Corporation. FICO scores reflect a mathematical formula that is based on information in a borrower’s credit report, compared to information on other consumers. Consumers with higher scores typically represent a lower risk of defaulting on their loans. There are three different FICO scores, each with a separate name, which correspond to each of the three main U.S. consumer reporting agencies. Equifax uses the “BEACON score”; Experian uses the “Experian/Fair Isaac Risk Model”; and TransUnion uses the “EMPIRICA score.” The score from each consumer reporting agency considers only the credit data available to that agency. Fair Isaac Corporation develops all three FICO scores and makes the scores as consistent as possible across the three consumer reporting agencies. Nevertheless, the three agencies sometimes have different information about a particular borrower member, and that means the three FICO scores for that borrower member will vary by agency. We currently obtain consumer credit information from a single consumer reporting agency, although we may use other consumer reporting agencies in the future.

 

As made available by Fair Isaac Corporation as of June 30, 2008 on its website, myfico.com, consumers in the United States are distributed among FICO scores as follows:

 

The FICO scoring model takes into account the information in a consumer’s credit report, with different kinds of information carrying differing weights. The FICO scoring model takes into account five categories of data:

 

 

 

 

FICO scores do not consider:

 

 

After obtaining authorization from the borrower member, by arrangement with WebBank we obtain a credit report from a consumer reporting agency to determine if the borrower member meets the criteria explained in detail above: a minimum FICO score of 640; a debt-to-income ratio (excluding mortgage) below 25%, as calculated by Lending Club based on (i) the debt (excluding mortgage) reported by a consumer reporting agency, and (ii) the income reported by the borrower member, which is not verified unless we display an icon in the loan listing indicating otherwise; and a credit profile (as reported by a consumer reporting agency) without any current delinquencies, recent bankruptcy, collections or open tax liens and reflecting at least four accounts ever opened, at least three accounts currently open, no more than 10 credit inquiries in the past six months, utilization of credit limit not exceeding 100% and a minimum credit history of 12 months.

 

From our inception until June 30, 2008, during a time in which we applied somewhat different and less restrictive criteria than we will following the date of this prospectus, only 13.1% of individuals seeking member loans on our site have met the credit criteria required to post their loan requests on our website. See “About Lending Club — Business — Prior Operation of the Lending Club Platform.” During the loan application process, we also automatically screen borrower members using U.S. Department of the Treasury Office of Foreign Asset Control lists, as well as our fraud detection systems. See “About Lending Club — Business — Technology — Fraud Detection.”

 

After submission of the application, we inform potential borrowers whether they qualify to post a loan request on our platform. Potential borrowers then must enter into a borrower membership agreement with Lending Club and a loan agreement with WebBank. These agreements set forth the terms and conditions of the member loans and

allow a borrower member to withdraw from a loan request at any time before the member loan is funded. See “About the Loan Platform — How the Lending Club Platform Operates — New Member Registration.”

 

As of March 31, 2008, when we applied somewhat different and less restrictive criteria, we were receiving approximately 4,000 borrower loan requests per month, of which approximately 600 qualified to be posted on the Lending Club website. See “About Lending Club — Business — Prior Operation of the Lending Club Platform.” After April 7, 2008, we reduced our marketing efforts. We are currently receiving about 1,500 borrower requests per month.

 

For borrower members who qualify, pursuant to the credit policy we assign one of 35 loan grades, from A1 through G5, to each loan request, based on the borrower member’s FICO score, requested loan amount, currently open accounts, number of credit inquiries in the past six months, utilization of credit limit and length of credit history. Applying these grading criteria, the following factors lead to a loan request being more likely to be designated grade A1: higher credit score; lower requested loan amount; fewer credit inquiries; fewer open accounts, given a minimum of six open accounts; utilization of credit limit between 5% and 85%; and greater length of credit history.

 

Specifically, we use the following six-step grading process to assign sub-grades.

 

First, using the FICO credit score, we assign each loan into an initial base sub-grade. Base sub-grades are assigned as follows:

 

Second, we modify the sub-grade according to the borrower’s member’s currently open accounts (as reported by a consumer reporting agency). Sub-grade modifications based on currently open accounts (as reported by a consumer reporting agency) are as follows:

 

 

Third, we modify the sub-grade based on the borrower member’s number of credit inquiries in the last six months (as reported by a consumer reporting agency). Sub-grade modifications based on the number of credit inquiries in the last six months (as reported by a consumer reporting agency) are as follows:

 

 

Fourth, we modify the sub-grade based on the borrower member’s utilization of his or her credit limit. Sub-grade modifications based on utilization of credit limit are as follows:

 

Fifth, we modify the sub-grade based on length of the borrower member’s credit history. Sub-grade modifications based length of credit history are as follows:

 

 

Sixth and finally, we modify the sub-grade based on the ratio of the requested loan amount to the Lending Club pre-determined “guidance limit.” Guidance limits are as follows:

 

 

Sub-grade modifications based on guidance limits are as follows:

 

 

By adding the modifiers to the initial sub-grade, we arrive at the final sub-grade.

 

For example, assume a borrower member requests a $5,000 loan, and the borrower member has a FICO score of 700, 10 open accounts, four credit inquiries in the last six months, 50% utilization of credit limit and more than 60 months of credit history. We would first assign this borrower a B2 sub-grade because the borrower’s FICO is 700. Next, we would make no sub-grade modification for open accounts, because 10 open accounts is greater than 5 and

less than 22. We would then lower the borrower member’s initial B2 base sub-grade one level based on four credit inquiries in the last six months, because four credit inquiries in the last six months results in a one level reduction in sub-grade. We would make no sub-grade modification for 50% utilization of credit limit, since it is greater than 5% but less than 85%, and we would make no sub-grade modification for length of credit history, because the borrower member has more than 60 months of credit history. Because the requested loan amount, $5,000, is between 25-49% of the guidance limit of $12,500 for B loan grades, we would further lower the sub-grade one level due to the difference between the loan amount and the guidance limit; $5,000 is 40% of $12,500. This loan request would therefore ultimately be lowered two sub-grades from B2 to B4.

 

E, F and G grades can only be assigned to a member loan as a result of downward sub-grade adjustments based on the requested loan amount and the credit report metrics described above: currently open accounts, number of credit inquiries in the past six months, utilization of credit limit and length of credit history.

 

Borrower Financial Information is Generally Unverified

 

As discussed above, borrower member information presented in loan listings is generally unverified. In contrast to the information provided by a consumer reporting agency and the requested loan amount, as described above regarding our loan grading criteria, lender members should not rely on unverified information provided by borrower members.

 

Additionally, we generally do not verify a borrower member’s ability to afford a member loan the borrower member has requested. For example, we do not review paystubs, IRS Forms W-2, federal or state income tax returns, bank and savings account balances, retirement account balances, letters from employers, home ownership or rental records, car ownership records or any records related to past bankruptcy and legal proceedings.

 

From time to time, however, we verify a borrower’s employment and income by requiring the borrower to submit paystubs, IRS Forms W-2 or other tax records between the initial posting of a loan request and any funding of a member loan. We currently attempt to verify income and employment for approximately 25% of loan requests that proceed past the initial credit check stage and are posted on the website although, for the reasons described below, we ultimately have verified employment and income for only approximately 11% of borrower members who received loans from our inception through June 30, 2008. We perform these employment and income verifications only during time between when a borrower member posts a loan request and the time the loan request is funded. We do not perform any income or employment verifications prior to the posting or following member loan funding. When we perform these verifications, we contact borrower members by email or telephone to request additional information. An icon appears in borrower loan listings to indicate when we have verified the borrower member’s income.

 

As of June 30, 2008, we perform targeted income verification primarily in the following situations:

 

 

 

 

 

 

 

We also conduct random testing. From time to time, we also randomly select listings to verify information for the purpose of testing our policies and for statistical analysis.

 

If the borrower member fails to provide satisfactory information in response to an income or employment verification inquiry, we may remove the borrower member’s loan listing or request additional information from the borrower member.

 

From the period from our inception to June 30, 2008, of the borrower members undergoing income and employment verification:

 

 

We conduct income and employment verification entirely in our discretion as an additional credit and fraud screening mechanism. We believe that our ability to verify a borrower member’s income may be useful in certain circumstances in screening our platform against exaggerated income and employment representations from borrower members. Lender members, however, should not rely on a borrower member’s stated employment or income, except when such income or employment has been verified as indicated on the loan details page, or on Lending Club’s ability to perform income and employment verifications. We cannot assure lender members that we will continue performing income and employment verifications. We expect that the percentage of loan postings for which we conduct income and employment verifications, and the percentage of borrower members who ultimately have their income and employment verified, will decline as our volumes increase. See “Risk Factors — Information supplied by borrower members may be inaccurate or intentionally false.”

 

Our participation as a lender on the platform has had, and will continue to have, no effect on our income and employment verification process, the selection of loan requests verified or the frequency of income and employment verification.

 

Interest Rates

 

After a loan request’s loan grade has been determined under the credit policy pursuant to our agreement with WebBank, an interest rate is assigned to the loan request. Interest rates currently range between 7.37% and 19.36%. The interest rates are assigned to borrower loan grades in three steps. First, the Lending Club base rates are determined. Second, an assumed default rate is determined that attempts to project loan default rates. Third, the assumed default rate is used to calculate an upward adjustment to the base rates, which we call the “Adjustment for Risk and Volatility.”

 

The base rates are set by the interest rate working group. This group generally meets on a weekly basis and includes our Chief Executive Officer; Chief Operations Officer; Director, Credit; Vice President, Collections; and Director, Product Strategy. The working group’s objective in setting the Lending Club base rates is to allocate the interest rate spread that exists between the cost of credit for borrower members and the return on bank deposits we understand are available to lender members. We have selected this spread as an appropriate starting place for our base rates for the following reasons:

 

 

By setting the initial allocation of the base rate near the middle of the spread between these two interest rates, we believe roughly equal value may be provided to both our borrower members and our lender members. To make this initial base rate calculation, the working group calculates the average between the interest rate for unsecured consumer credit published by the Federal Reserve, “commercial banks; all accounts,” in Federal Reserve Statistical Release G19, and the interest rate for 6-month certificates of deposit, “secondary market; monthly,” published by the Federal Reserve in Federal Reserve Statistical Release H15.

 

Next, the working group modifies this initial allocation, based on the following factors:

 

 

The working group adjusts the Lending Club base rates from time to time based on this methodology. In applying the adjustment to the base rate, the working group has established different base rates for grades A1-A3, grades A4-A5 and grades B1-G5.

 

When the working group set our current base rate on September 5, 2008, effective October 1, 2008, the interest rate for unsecured consumer credit published by the Federal Reserve, “commercial banks; all accounts,” in Federal Reserve Statistical Release G19 was 13.48%, and the average interest rate on 6-month certificates of deposit, “secondary market; monthly,” published by the Federal Reserve in Federal Reserve Statistical Release H15 was 2.87%. The average of these two interest rates was 8.18% (calculated as (13.48% + 2.87%)/2 = 8.18%). Applying the adjustments described above, the working group determined an adjustment of -1.13% for grades A1-A3, -0.38% for grades A4-A5 and 0.12% grades B1-G5. Therefore, the working group set the Lending Club base rate as 7.05% for grades A1-A3, 7.80% for grades A4-A5 and 8.30% for grades B1-G5.

 

After the working group sets the Lending Club base rates, we determine assumed default rates. The assumed default rate reflects Lending Club’s attempt to project the default rate for member loans of the loan grade. The 35 sub-grades, from A1 to G5, were obtained by dividing the difference between the assumed default rate of sub-grade A1 and the assumed default rate of sub-grade G5 into 35 equal intervals and assigning a sub-grade to each interval.

 

Lastly, the working group adjusts the base rates upward to reflect an adjustment correlated to the assumed default rate, which we call the “Adjustment for Risk and Volatility.” Currently, the working group has set this adjustment as an interest rate equal to twice the assumed default rate. Accordingly, to determine the final interest rates that apply on the Lending Club platform, the working group adds twice the assumed default rate to the base rates.

 

Set forth below is a chart describing the interest rates currently assigned to member loans for each of the Lending Club loan grades:

 

 

The interest rate working group has adjusted the Lending Club base rate from time to time in the past and will continue to do so. When the working group makes adjustment to our base rate, we will supplement this prospectus and will file a post-effective amendment to the registration statement of which this prospectus forms a part.

Illustration of Service Charge and Annual Returns For Fully Performing Loans of Each Sub-Grade and For Sub-Grades Based on the Assumed Default Rate

 

The following table illustrates hypothetical annual return information with respect to the Notes, grouped by Lending Club sub-grade. The information in this table is not based on actual results for lender members and is presented only to illustrate the effects by sub-grade on hypothetical annual Note returns of Lending Club’s 1.00% service charge and an assumed default rate. By column, the table presents:

 

 

For information about historical loan payment information and actual loss experience, see “About the Loan Platform — Historical Information about Our Borrower Members and Outstanding Loans.”

 

Illustration of Service Charge if Prepayment Occurs

 

The Lending Club platform allows a borrower member to prepay a member loan at any time without penalty, and all prepayments are subject to our 1.00% charge. Prepayments will reduce or eliminate the interest payments you expect to receive on a Note.

 

Thus, assume for example that a lender member purchases a $100.00 Note corresponding to a grade A3 member loan, bearing interest at 8.00%. If the member loan is paid in full according to its terms over its full three year term, the lender member will receive aggregate Note principal payments of $99.00, or $100.00 minus the 1.00% service charge, and aggregate Note interest payments of $12.62, or $12.75 minus the 1.00% service charge.

 

Assume, however, that the member loan corresponding to the Note is fully prepaid:

 

 

 

 

 

For information about historical loan prepayment information, see “About the Loan Platform — Historical Information about Our Borrower Members and Outstanding Loans.”

 

Standard Terms of the Member Loans

 

All Lending Club member loans are unsecured obligations of individual borrowers with a fixed interest rate and three-year maturity. Member loans have an amortizing, monthly repayment schedule and may be repaid in whole or in part at any time without prepayment penalty. In the case of a partial prepayment, we automatically recalculate the amortization schedule over the remainder of the three-year term, and the borrower member’s required monthly payment is correspondingly reduced. See “About the Loan Platform — Description of the Notes.”

 

Loan Postings and Borrower Member Information Available on the Lending Club Website

 

Once a loan request is complete and we have assigned a loan grade and interest rate to the requested loan, the request is subsequently posted on our website and then becomes available for viewing by lender members. Lender members are also then able to commit to buy Notes that will be dependent for their payments on that member loan. Loan requests appear under Lending Club screen names, not actual names. Lender members are able to view:

 

 

 

 

 

Borrower members who use our platform must identify their intended use of their loans. As of June 30, 2008, among funded member loans, borrower members identified their intended use of loan proceeds as follows:

 

 

Potential borrowers typically state the use of funds in a short sentence or clause, such as “Consolidate my credit card debt and be rid of it.” We historically have not verified, and do not plan in the future to verify or monitor, a borrower member’s actual use of funds.

 

Borrower members may also list social affiliations. One basic affiliation listed for every borrower member is the borrower member’s home state, which is based on the borrower member’s verified address. Borrower members may also choose to list an affiliation with a company, educational institution or association. We do not verify these additional stated affiliations, and borrower members are not required to list them.

 

Lender members are also able to view the following information provided by borrower members, which we do not verify:

 

 

 

 

 

We also post the following credit history information from the consumer reporting agency report, and label the information as being provided by a credit bureau:

 

 

Although borrower members and lender members are anonymous to each other, lender members may post questions on the loan listing and borrower members have the opportunity, but are not required, to post public responses. We do not verify these responses.

 

Loan posting and borrower member information available on the Lending Club website will be statements made in connection with the purchase and sale of securities, and therefore subject to Rule 10b-5 of the Exchange Act. Loan posting and borrower member information filed in prospectus supplements will be subject to the liability provisions of the Securities Act. In this prospectus, we advise potential investors in the Notes as to the limitations on the reliability of borrower member-supplied information. A lender member’s recourse in the event this information is false will be extremely limited.

 

Loan requests remain open for 14 days, during which time funding commitments to purchase Notes that will be dependent on the loans may be made by lender members unless funding commitments for Notes aggregating the loan request amount are received earlier, in which case the member loan is funded as soon as practicable.

 

How to Purchase Notes

 

After a loan request has been posted on the Lending Club website, individual lender members who have registered with Lending Club may commit to purchase Notes dependent on the member loan requested by the borrower member.

 

Lender members navigate our website as follows. Lender members may browse all active loan listings. They may also use search criteria to narrow the list of loan listings they are viewing. The available search criteria include loan grade, borrower member credit score range, number of recent delinquencies and loan funding status, as well as a free-search field. The free-search field returns results based on the word entered as the search. As lender members browse the loan listings, they can click on any of the listings to view additional detail. The loan detail page includes general information about the borrower member and the loan request that is viewable by non-members, and more detail (including credit data) viewable only by signed-in lender members. Once signed-in, lender members may select any of the displayed loan listings and add them to their “order,” which is akin to a shopping basket. Lender members may add as many member loans as they want to their order, provided that the aggregate amount of their order does not exceed the funds available in their Lending Club customer accounts. Once a lender member has finished building an order, the lender member may click the “check out” button, review the “order” one more time and then click the confirmation button to commit funds to the order. Funds committed represent binding commitments to purchase Notes issued by us that are dependent on the chosen member loans for payment. From that point on, the funds committed by the lender member are no longer available in the lender member’s Lending Club account and may no longer be withdrawn or committed to other loans (unless and until loans included in the order are not funded, in which case the corresponding funds become available to the lender member again).

 

A single borrower member’s loan request is typically funded by Notes purchased by many different lender members. For example, as of March 31, 2008, during the period in which lender members purchased loans directly instead of Notes dependent on loans, the average aggregate loan size was approximately $9,100 and the average funding commitment per lender per loan was approximately $75. Notes are available in a minimum denomination of $25, and in $25 increments thereafter. In the event that a borrower member’s loan request does not attract Note purchase commitments sufficient to provide full funding for the member loan, the borrower member ceases to be under an obligation to accept the loan, although borrowers may still choose to accept partial funding of their loan requests or may request that their loan requests be re-listed on the Lending Club platform. For the fiscal year ended March 31, 2008, among borrower members whose loan requests were only partially committed:

 

 

LendingMatch

 

In making loan purchase commitments under our prior structure, roughly 50% of lender members used Lending Club’s “LendingMatch” system, a proprietary search engine that creates a sample listing of Notes responsive to search criteria based on the lender member’s target weighted average interest rate for the lender member’s portfolio.

The following steps are involved in a lender member’s use of LendingMatch:

 

 

Lenders may also browse loan requests or sort them using search criteria without using LendingMatch. These search criteria include interest rate, FICO score range, debt-to-income ratio (calculated as described above), delinquencies in the last two years and percentage of the loan request already funded by Note commitments. Lenders may also search loan requests using keywords (such as a city or institution).

 

Loan Funding and Treatment of Lender Member Balances

 

A lender member’s commitment to purchase a Note dependent on a member loan is a binding commitment, subject only to receipt of aggregate Note purchase commitments equal to the total loan request amount or, if the total loan request amount is not fully met by lender member Note purchase commitments or Lending Club, a borrower member’s decision to accept partial funding. In order to make Note purchase commitments, lender members must have sufficient funds in their Lending Club accounts. This is accomplished by having each lender member authorize an electronic transfer using the Automated Clearing House, or ACH, network from the lender member’s designated and verified bank account to the account currently maintained by Lending Club at Wells Fargo Bank, N.A. “in trust for” our lender members. This so-called “ITF account” is a pooled account titled in our name “in trust for” Lending Club lender members. The ITF account is a non-interest bearing demand deposit account.

Funds in the ITF account will always be maintained at an FDIC member financial institution. Individual Lending Club members have no direct relationship with Wells Fargo Bank, N.A. We are the trustee for the ITF account. In addition to outlining the rights of lender members, the declaration of trust provides that we disclaim any economic interest in the assets in the ITF account and also provides that each lender member disclaims any right, title or interest in the assets of any other lender member in the ITF account. No Lending Club monies are ever commingled with the assets of lender members in the ITF account.

 

Under the ITF account, we maintain sub-accounts for each of our lender members on our platform to track and report funds committed by lender members to purchase Notes dependent on member loans, as well as payments received from borrower members. These record-keeping sub-accounts are purely administrative and reflect balances and transactions concerning the funds in the ITF account.

 

The ITF account is FDIC-insured on a “pass through” basis to the individual lender members, subject to applicable limits. This means that each individual lender member’s balance is protected by FDIC insurance, up to the aggregate amounts established by the FDIC. Other funds the lender member has on deposit with Wells Fargo Bank, N.A., for example, may count against the FDIC insurance limits.

 

Funds of a lender member may stay in the ITF account indefinitely. Such funds may include funds in the lender member’s sub-account never committed to purchase Notes or committed to the purchase of Notes for which the underlying member loan did not close and payments received from Lending Club related to Notes previously purchased. Upon request by the lender member, we will transfer lender member funds in the ITF account to the lender member’s designated and verified bank account by ACH transfer, provided such funds are not already committed to the future purchase of Notes.

 

Purchases of Notes and Loan Closings

 

Once a lender member has decided to purchase one or more Notes that are dependent on member loans and prefunded the lender member’s Lending Club account with sufficient cash, we proceed with the purchase and sale of the Notes to the lender member and facilitate the closing of the corresponding member loans. At a Note closing, when we issue a Note to a lender member and register the Note on our books and records, we transfer the principal amount of such Note from such lender member’s sub-account under the ITF account to a funding account maintained by WebBank. This transfer represents the payment by the lender member of the purchase price for the Note. These proceeds are designated for the funding of the particular member loan selected by the lender member. WebBank is the lender for all member loans to borrower members, which allows our platform to be available on a uniform basis to borrower members throughout the United States, except that we do not currently offer member loans in Idaho, Indiana, Iowa, Maine, Nebraska, North Carolina, North Dakota and Tennessee. We are obligated to maintain sufficient funds in the funding account maintained by WebBank to satisfy the daily projected member loan closings. WebBank disburses the loan proceeds to the borrower member who is receiving the member loan. An individual member loan generally closes the first business day after we receive Note funding commitments in an aggregate amount equal to the total amount of the loan request, or when the borrower member agrees to take a lesser amount equal to the amount of Note commitments received up to that time.

 

The borrower member executes an electronic loan agreement in favor of WebBank. At the closing of the borrower member’s loan, we execute an electronic promissory note on the borrower member’s behalf for the final loan amount under a power of attorney on behalf of the borrower member. WebBank then electronically indorses the promissory note to Lending Club and assigns the borrower member’s loan agreement to Lending Club without recourse to WebBank. Borrowers also electronically execute a borrower membership agreement in which they grant us the power of attorney to execute their promissory note and agree to have us service their member loan, among other things.

 

The promissory note and the loan agreement contain customary agreements and covenants requiring the borrower members to repay their member loans and acknowledging Lending Club’s role as servicer for all the member loans. Borrowers authorize WebBank to disburse the loan proceeds by ACH transfer.

Lender members know only the screen names, and do not know the actual names, of borrower members. The actual names and mailing addresses of the borrower members are known only to us and WebBank. We maintain custody of the electronically-executed promissory notes in electronic form on our platform.

 

Borrowers pay us an origination fee upon successful closing of the member loan. WebBank deducts the origination fee from the loan amount prior to disbursing the net amount to the borrower member and remits the fee to us. This fee is determined by the loan grade of the loan and currently ranges from 0.75% to 3.00% of the aggregate principal amount, as set forth in the chart below:

 

 

Identity Fraud Reimbursement

 

We reimburse lender members for the unpaid principal balance of a Note that is dependent on a member loan obtained through identity fraud. We generally recognize the occurrence of identity fraud upon receipt of a police report regarding the identity fraud. This reimbursement for identity fraud only provides an assurance that our borrower identity verification is accurate; in no way is it a guarantee of a borrower’s self-reported information (beyond the borrower’s identity) or a borrower member’s creditworthiness. We expect the incidence of identity fraud on our platform to be low because of our identity verification process. As of June 30, 2008, we had experienced two cases of confirmed identity fraud. In both cases, we received a police report from the victim of the identity fraud, evidencing that identity fraud had occurred. Following our receipt of those police reports, we reimbursed the lender members who had funded those member loans for the outstanding principal amount of those member loans.

 

Post-Closing Loan Servicing and Collection

 

Following the purchase of Notes and the closing of the corresponding member loans, we begin servicing the member loans.

 

We assess lender members a service charge in respect of their Notes. Our service charge is equal to an amount corresponding to 1.00% of the following amounts received by Lending Club from borrower members in respect of each corresponding member loan (in each case excluding any payments due to Lending Club on account of portions of the corresponding member loan, if any, funded by Lending Club in its capacity as a lender on the platform):

 

 

Our procedures generally involve the automatic debiting of borrower bank accounts by ACH transfer, with payment by check only allowed in exchange for a 5% increase in the borrower member’s applicable interest rate. Such funds are transferred to a clearing account in our name where they remain for four days or until the amounts clear, whichever is shorter. Thereafter, we make payments on the Notes by transferring the appropriate funds to the ITF account and allocating amounts received on specific member loans to the appropriate lender member’s sub-account. We transfer amounts due to us for servicing and borrower loans we hold from the clearing account to another operating account of ours. A lender member may transfer uncommitted funds out of the lender member’s Lending Club sub-account in the ITF account by ACH to the lender member’s designated bank account at any time, subject to normal execution times for such transfers (generally 2-3 days).

 

We disclose on our website to the relevant lender members and report to consumer reporting agencies regarding borrower members’ payment performance on Lending Club member loans. We have also made arrangements for collection procedures in the event of borrower member default. When a member loan is past due and payment has not been received, we contact the borrower member to request payment. After a 15-day grace period, we may, in our discretion, assess a late payment fee. The amount of the late payment fee is the greater of 5.00% of the unpaid installment amount, or $15, or such lesser amount as may be provided by applicable law. This fee may be charged only once per late payment. Amounts equal to any late payment fees we receive are paid to holders of the Notes dependent on the relevant member loans, net of our service charge. We often choose not to assess a late payment fee when a borrower promises to return a delinquent loan to current status and fulfills that promise. See “About the Loan Platform — Historical Information about Our Borrower Members and Outstanding Loans.” We may also work with the borrower member to structure a new payment plan in respect of the member loan without the consent of any holder of the Notes corresponding to that member loan.

 

Each time a payment request is denied due to insufficient funds in the borrower’s account or for any other reason, we may also assess an unsuccessful payment fee to the borrower in an amount of $15 per unsuccessful payment, or such lesser amount as may be provided by applicable law. We retain 100% of this unsuccessful payment fee to cover our costs incurred because of the denial of the payment.

 

If a member loan becomes 31 days overdue, we identify the loan on our website as “Late (31-120),” and we either refer the member loan to an outside collection agent, currently AR Assist, LLC, or to our in-house collections department. Currently, we generally use our in-house collections department as a first step when a borrower member misses a member loan payment. In the event that our initial in-house attempts to contact a borrower member are unsuccessful, we generally refer the delinquent account to the outside collection agent. Amounts equal to any recoveries we receive from the collection process are payable to lender members on a pro rata basis, subject to our deduction of our 1.00% service charge and an additional collection fee. The lender member is only charged the additional collection fee if the collection agency or Lending Club are able to collect a payment. These fees, which are a percentage of the amount recovered, are listed below:

 

 

Lender members are able to monitor the status of collections as the status of a member loan switches from “Late (15-30 days)” to “Late (31-120)” to “current” for example, but cannot participate in or otherwise intervene in the collection process.

 

If a borrower member dies while a member loan is in repayment, we require the executor or administrator of the estate to send a death certificate to us. We then file a claim against the borrower member’s estate to attempt to recover the outstanding loan balance. Depending on the size of the estate, we may not be able to recover the outstanding amount of the loan. If the estate does not include sufficient assets to repay the outstanding member loan in full, we will treat the unsatisfied portion of that member loan as defaulted with zero value. In addition, if a borrower member dies near the end of the term of a member loan, it is unlikely that any further payments will be made on the Notes corresponding to such member loan, because the time required for the probate of the estate may extend beyond the initial maturity date and the final maturity date of the Notes.

 

Our normal collection process changes in the event of a borrower member bankruptcy filing. When we receive notice of the bankruptcy filing, as required by law, we cease all automatic monthly payments on the member loan. We also defer any other collection activity. The status of the member loan, which the relevant lender members may view, switches to “bankruptcy.” We next determine what we believe to be an appropriate approach to the member’s bankruptcy. If the proceeding is a Chapter 7 bankruptcy filing, seeking liquidation, we attempt to determine if the proceeding is a “no asset” proceeding, based on instructions we receive from the bankruptcy court. If the proceeding is a “no asset” proceeding, we take no further action and assume that no recovery will be made on the member loan.

 

In all other cases, Lending Club will file a proof of claim involving the borrower member. The decision to pursue additional relief beyond the proof of claim in any specific matter involving a Lending Club borrower member will be entirely within our discretion and will depend upon certain factors including:

 

 

Participation in the Funding of Loans by Lending Club and Its Affiliates

 

Prior to April 7, 2008, we experienced situations where qualified loan requests were not being fully committed to by our lender members. Furthermore, during the period from April 7, 2008 until the date of this prospectus, no qualified borrowing requests were funded through funding commitments from lender members because we were not offering funding opportunities to the public during this time. To address these situations, we have funded portions of certain member loan requests, using the proceeds of credit facilities we have obtained from outside financing sources. As of March 31, 2008, we had funded $7.0 million of loan requests; as of June 30, 2008, we had funded approximately $9.0 million of loan requests and as of August 31, 2008, we had funded approximately $10.3 million of loan requests. Although we have no obligation to do so, we may fund portions of loan requests in the future.

 

Our affiliates, including our executive officers, directors and shareholders, also have funded portions of member loans requests from time to time in the past, and may do so in the future. As of June 30, 2008, our affiliates had funded $460,850 of loan requests.

 

Trading Platform

 

Lender members may not transfer their Notes except through the resale trading platform operated by FOLIO fn Investments, Inc., a registered broker-dealer. See “About the Loan Platform — Description of the Notes — Restrictions on Transfer.” This trading platform is an internet-based trading platform on which Lending Club lender members who establish a brokerage relationship with the registered broker-dealer operating the trading platform may offer their Notes for sale. In this section, we refer to lender members who have established such brokerage relationships as “subscribers.” Only transactions involving resales of previously issued Notes will be effected through the trading platform; the trading platform will not handle any aspect of transactions involving the initial offer and sale of Notes by Lending Club. Subscribers may post orders to sell their Notes on the trading platform at prices established by the subscriber. Other subscribers will have the opportunity to view these prices, along with historical information from the original loan posting for the member loan corresponding to the Note, an updated credit score range of the borrower member and the payment history for the Note.

 

Currently, the only fees payable by subscribers in respect of the trading platform are the fees charged by the registered broker-dealer to subscribers who sell Notes. This fee is currently equal to 1.00% of the resale price of the Note sold.

 

All Notes traded through the trading platform will continue to be subject to Lending Club’s ongoing fees, including the ongoing 1.00% service charge.

 

Lending Club is not a registered national securities exchange, securities information processor, clearing agency, broker, dealer or investment adviser. All securities services relating to the trading platform are provided by FOLIO fn Investments, Inc., a registered broker-dealer. Neither Lending Club nor FOLIO fn Investments, Inc. will make any recommendations with respect to transactions on the trading platform. There is no assurance that lender members will be able to establish a brokerage relationship with the registered broker-dealer. Furthermore, Lending Club cannot assure subscribers that they will be able to sell notes they offer for resale through the trading platform at the offered price or any other price nor can Lending Club offer any assurance that the trading platform will continue to be available to subscribers.

Customer Support

 

We provide customer support to our borrowers and lenders. For most Lending Club members, their experience is entirely web-based. We include detailed “frequently asked questions” (“FAQs”) on our website. We also post detailed fee information and the full text of our member legal agreements.

 

We make additional customer support available to members by email and phone. Our customer support team is located at our headquarters in Sunnyvale, California.

 

Historical Information about Our Borrower Members and Outstanding Loans

 

As of June 30, 2008, Lending Club had facilitated 2,114 member loans with an average original principal amount of $8,440 and an aggregate original principal amount of $17,841,700, out of which $16,566,225 had been outstanding for more than 45 days and had been through at least one billing cycle. Out of these loans that had been through at least one billing cycle, 97.82% were current, 0.58% were 15 to 30 days late, 1.36% were more than 30 days late, and 0.36% were defaulted. A member loan is considered as having defaulted when at least one payment is more than 120 days late.

 

The 0.36% of defaulted loans as of June 30, 2008 were comprised of eight member loans, equaling a total defaulted amount of $63,959. Of these eight defaulted loans, seven were loans that became 120 days late, equaling $58,873 in defaulted amount, and one was a loan in which the borrower member filed for a Chapter 7 bankruptcy seeking liquidation, equaling $5,086 in defaulted amount.

 

From the period from our inception until June 30, 2008, the total number of loans that had ever entered late status, including the 0-15 days late grace period, was 273. Of these 273 member loans, 171 subsequently became more than 15 days late and qualified to have a late fee assessed. We assessed late fees in respect of 39 of these 171 member loans, resulting in late fee assessments totaling $585.

The following table presents aggregated information about borrower members and their loans for the period from May 24, 2007 to June 30, 2008, grouped by the Lending Club loan grade assigned by Lending Club: