A cash crunch is impeding the online lending industry's growth as the cost of borrowing grows, funds become increasingly scarce and ratings agencies maintain a cautious outlook toward the space.
Next, start-ups that have grown into unicorns originating billions of dollars' worth of loans may find themselves doing less lending or, conversely, putting more of their loans onto their own books.
The asset-backed securities market is slowing and issued a meager $40 billion in January — the lowest total since at least 2012, according to Dealogic data — and generated a paltry $10 billion in ABS loans in February. In terms of deal volume, ABS deals in 2016 have also dropped to lows the market has not seen for years.
"We want to tap into the ABS market," said Suk Shah, CFO of lender Avant. "We think the market will be there for our product, it's just a matter of what cost."
Shah said he's expecting an increase in the cost of capital for online lenders. But the start-up, which hit a valuation of $2 billion in late 2015, has other avenues it can use to fund operations. Avant has access to more than $1 billion in existing debt financing and operates a high-net worth lending platform for clients looking to take bigger blocks of peer-to-peer loans. So it's not dependent on ABS deals to issue loans.
But some online lenders are facing skeptical analysts.