#562
Loans Gone, But Not Forgotten
Published:
Oct 19, 2024
Author:
Sarah Parsons Wolter
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Consumer lending startups are increasingly adopting creative strategies to offload risk and move loans off their balance sheets. Upstart, for example, recently struck a deal with Blue Owl Capital to sell up to $2b of its consumer loans over the next 18 months. Through this forward-flow agreement, where loans are pre-sold before origination, Upstart can continue expanding its lending operations without the financial burden of holding the loans themselves.
Klarna and SoFi are following similar paths. Klarna, the buy-now, pay-later giant, recently sold a significant portion of its UK loan portfolio to Elliott Advisors, freeing up £30b in capital to support its ongoing growth and gear up for a potential IPO next year. SoFi, on the other hand, reached a $2b deal with Fortress Investment Group to fund the origination of personal loans, allowing it to focus on less capital-intensive operations as part of its broader strategy to diversify revenue.
These deals highlight a broader trend among consumer fintech lenders: selling loans to private credit and hedge funds. For these investors, it’s an opportunity to capture a share of the consumer lending market traditionally dominated by banks. For lending startups, however, it’s a chance to better manage risk and free up equity capital to fund other priorities. Shares of Upstart and SoFi surged following their announcements, signaling market confidence in this off-balance-sheet approach. Sometimes it’s smarter to let someone else hold the bag.
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Loans Gone, But Not Forgotten
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