While many lenders in the quick service, on-line lending sector have seen a relative slowdown in customer acquisition rates due to the prolific rise in the competitive landscape, IEGH is proving its ability to buck that trend.
IEG Holdings, leveraging off of the strength of their "Mr. Amazing Loans" product has not only experienced tremendous growth during the previous twelve months, but they have also put into place a corporate strategy to attract quality customers, capitalizing not only off of its competitive and consumer friendly loan products, but from the high level of consumer satisfaction and reviews that IEGH has received from its expanding customer base.
As it stands, IEG Holdings is one of only a small handful of on-line lenders that currently boasts an A+ rating with the Better Business Bureau. Yet, having strong reviews is only one part of the IEGH profile, having a better consumer product is the essential element to their emerging success.
"Mr. Amazing Loans" and IEGH, Far From Ordinary
First and foremost, it's important to distinguish what IEG Holdings does differently from its competitors, factors that clearly define the strengths and opportunities that lay within the company's business and strategic vision. In that process, several aspects emerge that point to the IEGH model as one that may lead to continued strong growth in the U.S. market.
It's fair to note that on-line lending may have somewhat of a dubious past, with a substantial number of lenders flooding the market with deceptive, predatory and misleading loan products, counting on the consumers lack of initiative in reading the fine print when executing documents. IEG Holdings, however, is clearly not following their lead. And, to be entirely fair, with the company's loan products being relatively new to the U.S. market, making a comparison between IEGH and its market competitors may be quite erroneous. Simply put, IEGH is different.
Instead of being typical to the current on-line lending process, the company is breaking from the industry norm, differentiating its "Mr. Amazing Loans" product by providing a transparent and simple approach to lending. Understandably, for many consumers it's hard to break the pre-conceived notion that on-line lenders are in the market to squeeze the pennies out of a desperate consumer. While that may be true for some lenders whom rely on high risk, low credit score candidates to build its loan portfolio, IEG Holdings is different, focusing on a diverse market and strategy.
The "Mr. Amazing Loans" product provides an offering to consumers that rewards credit worthy candidates the ability to secure a quick cash loan of between $5,000 -$10,000 dollars. Even more appealing is that a "Mr. Amazing Loans" product is typically funded on the same business day that the application is submitted, and in some cases funding can occur within an hour of completing the application. The agreements are fully transparent, with no hidden fee's or "fine print" costs designed to dupe consumers into making additional and unintended payments.
According to the Consumer Financial Protection Bureau, although many people are working full time, they still remain literally one or two paychecks away from enormous financial stress. IEGH, through its "Mr. Amazing Loans" brand, is working to fill that void, offering a service to credit worthy consumers that may require quick access to cash. Focusing on the reality that even the most successful people often find themselves in a bind, having a product available to them that offers speed, reliability and instant access to cash is a valuable resource.
As many people who have tried to access capital may know, going to a bank for traditional funding can be a logistical nightmare, and unless a customer can provide immediate and liquid collateral, the chances for loan approval is low. While the traditional banking system has remained stubborn against the small consumer in regard to capital access, the likelihood that that same credit worthy customer will receive approval from IEGH's, "Mr. Amazing Loans", may be highly probable.
"Mr. Amazing Loans" Application Process
Breaking away from the traditional methods of both brick and mortar and on-line loan processes, "Mr. Amazing Loans" has built a seamless application model designed to efficiently and thoroughly screen applicants who have applied for a cash loan.
Using a streamlined method of internal metrics that evaluate the risk associated in providing customer specific loans, "Mr. Amazing Loans" adheres to just a few basic guidelines to start the application process, and if a customer can meet these initial requirements, funding is generally approved.
First, rather than preying on those most susceptible to loan default, IEGH focuses on clients that have a minimum FICO credit score of 600, with most loans being provided to customers with a FICO score in a range between 600-750. In addition to attracting a worthy credit candidate to start the process, "Mr. Amazing Loans" does have some additional requirements intended to minimize default risk in a loan.
The applicants must be 21 years of age and reside in one of 19 licensed states, show proof of regular employment, have a minimum gross income of $40,000 dollars and have an established checking account with the ability to make weekly payments from an approved financial institution. While the qualifications may appear simplistic from a credit evaluation risk standpoint, "Mr. Amazing Loans" also employs internal metrics that further evaluate and qualify a potential customer, minimizing investor risk from losses due to excessive loan defaults.
From a business and marketing standpoint, the application process, from start to finish, offers customers with one of the quickest turn-around times in the industry, with few competitors able to match the same day funding advantage that "Mr. Amazing Loans" can provide.
And, this process has not gone unnoticed by customers, with the vast majority of them providing excellent reviews on "Mr. Amazing Loans" transparent lending practices, fee's and simple on-line conveniences.
IEGH and "Mr. Amazing Loans" Investor Prospective
While IEGH is offering a product and service that is clearly gaining market momentum, evident by the growth of its loan portfolio, investors want the assurance that an investment into the company is prudent. And, while investors can clearly take comfort in the fact that IEG Holdings only provides loans to vetted and credit worthy customers, that benefit is only a single component to building investor confidence.
Beyond the credit profiles, there is great value in the fact that IEGH is fully and properly licensed in 19 states, with a goal of becoming fully licensed in 25 states by mid 2017. While some investors may shrug off the company's licensing advantage, it's important to point out that many competitor on-line lenders operate on the fringes of legality, taking advantage of current loopholes and loose regulation that provide little more than a legal interpretation for them to operate freely in a given market. And, history has shown that there is great risk when relying upon interpretation rather than substance. In some instances, regulators have shut down loosely licensed lenders, causing forfeiture of large loan portfolios and making collection efforts unenforceable. This is not the case at IEG Holdings.
Absent the fact that the company does not operate with a brick and mortar concept, the company is certain to remain strictly compliant with all state law, adheres to explicitly stated lending practices and does not run the risk of jeopardizing its loan portfolio due to a tenable business operation. To the contrary, IEGH offers investors the assurance that they are complicit with each state's consumer lending mandates, insulating themselves and its loan portfolio from potential regulatory action.
The "Mr. Amazing Loans" Return on Equity
IEGH has completed a thorough reorganization for both its corporate profile and capital structure. Coming off a share restructure in November of 2016, IEGH has positioned itself for long term growth with an aggressive and streamlined focus on controlling expenses, while at the same time building a performing loan portfolio founded on prudent and proven strategies.
IEG Holdings, due to its lack of brick and mortar presence, relies on direct mail, on-line and social media advertising to attract its potential client base. "Mr. Amazing Loans" offers a consumer up to $10,000 dollars in same day cash with an interest rate of between 19.9%-29.9%. In doing so, the company provides extensive disclosure with no hidden loopholes or agenda to snag customers in a never ending spiral of debt payment. Rather than treating clients as a one-time prospect, where they are then spun into an abyss of relentless payments and penalties, IEGH looks at each client as offering the potential for a long term relationship. IEGH accomplishes this goal by offering refinance tools and incentives to repay loans without pre-payment penalty, exorbitant late fee's, incidental charges such as "check processing" fee's or other self-serving incidentals, items that contribute to low customer satisfaction and less product loyalty.
Taking advantage of technology, IEG Holdings can keep expenses to a minimum. Customer acquisition rates amount to less than 2% of loan revenue, and combined with the competitive interest rates being received, provides IEGH with a net equity return on loans of approximately 20%. Additionally, the company has proven the benefit from direct mail marketing, with a robust conversion rate which contributes to the company's low customer acquisition costs. IEGH estimates that a well targeted mailing holds the potential to be converted into millions of dollars in loan volume. IEG Holdings also has a mechanism in place to sell off loan leads that do not meet company specific targets, providing additional revenue.
With IEGH incorporating each component of their corporate strategy into a single seamless model by offering attentive customer service and a credible loan product, IEGH and "Mr. Amazing Loans" currently boasts its A+ rating with the Better Business Bureau and maintains an internal goal to re-finance up to 80% of its loans made, creating long term value and building a loyal customer base.
IEGH Turning Profitable
In December of 2016, IEG Holdings reported financial results that proved that their strategy to streamline costs and target credit worthy customers is working. The company not only reiterated its profitable Q1 guidance for 2017, but also recorded record loan volumes for the period. Since January of 2015, IEGH has seen its loan portfolio increase by over 154%, rising from $5.5 million dollars to over $14 million dollars as of December 13, 2016.
With IEGH now turning profitable, the likelihood that IEG Holdings can remain profitable in the near term is probable, based on an anticipated rise in both loan and revenue growth. And, IEGH management may be expecting more of the same, with two planned initiatives focused on creating shareholder value.
Turning profitable, and combined with disciplined cost control and a proven lending strategy, IEGH management has declared that a cash dividend will be paid in April of 2017. Further, based on management’s visibility to anticipate future profitability, the company intends to institute regular quarterly dividends that are expected to commence in 2017. Additionally, management has further stated that the company will investigate opportunities to repurchase shares in the open market, providing support to the stock on an on-going basis. With IEGH being thinly traded for the time being, having a mechanism in place to provide bid support can be an attractive feature for current and future shareholders.
IEG Holdings Seeks To Expand Loan Portfolio
With much of the capital and corporate restructure behind them, IEGH has launched a private offering of up to $10 million dollars in aggregate principal amount for its 12% senior unsecured notes due December 31, 2026. IEG Holdings is underwriting the offering on its own and intends to utilize the net funds to increase the size of its loan book.
This non-dilutive offering maintains the outstanding share count at roughly 9.7 million shares, with a trading float much smaller at an estimated 2.75 million shares. As noted previously, with IEGH being thinly traded and with both the outstanding share count and trading float being low, the trajectory of the stock going forward on improved profitability and fundamentals may be extremely rewarding.
Even though prior financial results should not be relied upon to predict the future, for a business like IEG Holdings, once the formula for profitability is established and proven, the likelihood for continued and consistent performance is enhanced. Although no guarantees are in place, if IEGH successfully completes the $10 million dollar notes offering, the company may have the ability to increase its loan portfolio by over 60% from current levels, driving additional revenue from interest earned. Additionally, with the cumulative effect of newly raised funds intended to increase the loan portfolio, coupled with the revenues currently being generated through interest payment receivables, the IEG Holdings share price begins to look undervalued at current levels from a sector based, multiple valuation point of view.
IEGH Outlook for Investors
While the on-line lending industry may regularly be faced with the challenge of presenting themselves differently from unpopular public perception, IEGH, in practicing a departure from industry standard, has set a high and reputable bar in a field that has enormous barriers to entry.
Progressing methodically to remain strictly compliant in all regulatory aspects, the company is on the path to reach their stated goal of becoming fully and properly licensed in 25 states prior to mid 2017. Upon doing so, IEGH will be well positioned to promote the "Mr. Amazing Loans" suite of products to a market that is clearly receptive to being provided a viable alternative to traditional lending.
For investors, IEG Holdings may be a compelling investment candidate in that they have already reached the profitability milestone. While some investors work tirelessly to find emerging companies that are working towards positive cash flow and hopeful profitability, IEGH already offers investors both of those components, along with a capital structure that may be conducive to increasing shareholder value.
Disclosure: This article was written by Kenny Soulstring, and it reflects my own opinions and unique articulation. This article is not intended to offer investing advice, guarantee 100% accurate predictions or to be interpreted as providing a personal recommendation. What I can guarantee, though, is accurate research, thoughtful analysis and an enthusiasm about any stock that I cover.
While I seek to uncover emerging companies that I feel have true value and potential, it's important that investors assign an appropriate time horizon to each of their investments, understanding that emerging companies need time to mature.
I wrote this article myself and it includes my own research and expresses my own opinions. I am not receiving compensation for it (other than from CNA Finance). I have no business relationship with any company whose stock is mentioned in this article.
Additional Disclosure: I have no position in any stock mentioned, but may initiate a long position in IEGH within the next 72 hours.
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