Online lenders preparing for recession

Increasingly more online lenders are expecting a recession, Reuters writes. Peer-to-peer and digital lenders came about in large part in response to the Great Recession of 2008, however, as they rely on market funding, it might be a problem during an economic downturn. According to Reuters, a recession could mean escalating credit losses, or a liquidity crunch.

When discussing a possible recession, LendingClub CEO Scott Sanborn said, “This is very top of mind for us. It’s not a question of ‘if,’ it’s ‘when,’ and it’s not five years away.”

The problem with online lenders is that so far, they have not been tested in times of economic duress. However, now more are expecting economic conditions to worsen, as they point to troubling economic indicators and forecasts.

According to economists polled by Reuters last month, there is a "25 per cent chance of chance of U.S. recession over the next 12 months.” JPMorgan Chase's quarterly profits, on the other end, point to a better situation—the bank indicated better-than-expected quarterly profits driven by “solid U.S. economic growth.”

Lending fintech SoFi has been concentrating on creating a more profitable portfolio. Other companies are aiming to secure more funding. Kabbage recently raised $700 million in an asset-backed securitization to prepare for a possible recession.