Under the terms of the agreement, Schwab is providing E-Loan the money through the purchase of a convertible note at 8 percent interest annually. The note can convert to E-Loan common stock at $1.06 per share on Jan. 19, 2003.
Just over a year ago, Schwab invested $10 million in E-Loan, which offers home, auto and small business loans to consumers via the Internet. Schwab's investment into Dublin, Calif.-based E-Loan was part of a $40 million round of financing that included other backers, such as Benchmark Capital and Technology Partners.
Since then, however, the company has spent much of its cash and sought lines of credit from a bank to fund its auto loans and from the company's chief executive to fund operations.
Analysts have said that the online financial services sector is due for a shakeout. Consumers have embraced the convenience of banking and using other financial services online. But a glut of companies has rushed in to cash in on the rising demand.
E-Loan also aggregates multiple lenders and loans online. Besides competing with each other, online lenders have had to combat the countless and entrenched offline lending companies.