Even Lending Club won’t lend to pot businesses

There will be no lighting up at Lending Club.
There will be no lighting up at Lending Club.
Image: Reuters/Ueslei Marcelino
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Lending Club has been getting into small business loans in a big way, but the newly-minted public company says it won’t just lend to any company.

The online lender was originally founded in 2007 to help borrowers bypass banks and get loans online from other individuals. Following an influx of investor demand from Wall Street, Lending Club began expanding its offerings to small businesses with more than two years’ experience and $75,000 to $100,000 in annual sales.

But there are “some things we won’t do and certain businesses we won’t touch,” Lending Club’s vice president of small business Sid Jajodia told attendees this week at Lendit USA, the annual pep-rally for online lenders.

Lending Club doesn’t “do startups, or nonprofits” and it “won’t touch marijuana businesses,” Jajodia said.

Jajodia, who previously ran small business lending at Capital One, explained that “it’s unclear what lending to those businesses would mean for our reputation or regulatory risk.”

Lending Club’s stance mimics the behavior of the very banks the online lender was created to uproot, which have resisted lending to businesses federal regulators deem risky, including those in marijuana and crytocurrencies such as bitcoin. (Jajodia didn’t discuss the company’s stance on lending to bitcoin companies at Lendit USA.)

According to the American Banker:

The risks of the pot and cryptocurrency industries are due in part to their cloudy regulatory status. No bank has been publicly censured or fined by bank regulators for working with either industry, and regulators have issued guidelines on how banks can legally serve these industries.

But for most banks the business isn’t worth the risk. The result is that even as these industries begin to join the mainstream — with legal cannabis now a multi-billion-dollar business and traditional financial institutions investing millions in Bitcoin companies — basic banking services remain either off-limits or onerously expensive.

And it looks like even Lending Club, one of the best-known disruptors in the finance space—won’t change that anytime soon.