Consumer debt in the U.S. reached nearly $3.1 trillion as of October 2013, according to CreditCards.com, with the average U.S. citizen holding $4,878 in credit card debt. Personal loans have become an attractive alternative to credit cards with interest rates often lower than the average APR charged by credit cards and more transparent amortization schedules. In this article, we’ll take a look at how IEG Holdings Inc. (OTC Pink: IEGH) aims to capitalize on these trends with its recent expansion.
Funding Unlocks Potential
IEG Holdings increased its senior debt facility with Boston Finance Group from $3 million to $10 million in November 2013. In addition to supporting strategic growth initiatives, the increase is a strong vote of confidence in the company’s business model and management team. In December 2013, DME Capital LLC committed to an additional $5 million in funding via an equity line which is scheduled to commence in 2014 after the SEC declares the registration statement related to the transaction effective.
Management plans to use the $10 million senior debt facility and $5 million equity line to support the launch of its new online lending website, http://www.mramazingloans.com/, which has improved conversion rates by 50%, according to a recent press release. The financing will also support management’s efforts to extend its population coverage by moving into New Jersey where it applied for a lending license on December 6, 2013 and plans to enter the market in 2014.
Targeting a Better Market
IEG Holdings differs from payday lenders, like Cash America International Inc. (NYSE: CSH) or DFC Global Corp. (NASDAQ: DLLR), by offering larger $2,000 to $10,000 personal loans at a more affordable 19.9% to 29.9% APR’s and longer three to five year terms. Management’s focus on compliance and high quality loans to creditworthy individuals also stands out when compared to many other companies within the payday industry.
In addition to targeting large end markets, management’s online focus has helped reduce customer acquisition costs and enhance margins. For example, industry competitors using traditional marketing channels tend to pay between 8% and 10% when advertising on television or in newspapers while the company’s online advertising strategy generates $10,000 loans for as little as a 1% acquisition cost. These dynamics should contribute to industry leading margins over the coming years.
Investment Opportunity
IEG Holdings recently reported an 84% increase in loan originations and attributed much of the growth to their capital efficient online business model. These loans come from Nevada, Florida, Arizona and Illinois. Moving forward, management plans to expand their offerings to the 8.9 million consumers in New Jersey in the near-term and the rest of the U.S. over the long-term, which could set the stage for high margin revenue growth over time.
The company represents a strong investment opportunity given its large target markets, ample funding, and low-cost customer acquisition strategy. With a market capitalization of just $80.5 million, the company trades at a fraction of its potential within the $45 billion industry, particularly given its new online portal and New Jersey lending application.
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