P2P money lending service Lending Club has closed a $12 million Series B round with Morgenthaler Ventures as the lead and joined by existing investors Norwest Venture Partners and Canaan Partners. The total capital invested in the company is now nearly $25 million. (Its Series A round amounted to $10.3 million).

The company, which started out as a Facebook application for social money lending, hasn’t had it easy so far. In April 2008, it was forced to put a hold on lending activities because of regulatory issues, and ultimately filed for SEC registration during the summer of that year. Then the economy collapsed and Lending Club along with other P2P lenders were heavily affected. The SEC suspended loan activities one of Lending Club’s main competitors, Prosper, at the end of last year, citing obvious reasons that these companies should be regulated by the SEC as a securities seller.

With one of their main competitors out of the battlefield (but many others remaining), the company will no doubt use the new capital to push for dominance in the space. Lending Club says it’s growing quickly, doubling its user base over the past 5 months and handing out returns to users of over 9% net.

If the company manages to weather the storm without too much damage, it will be very interesting to see how social lending evolves in the future – now that banks and other ways of loaning money have lost a lot of credibility across the board – and how vital the role of Lending Club in that story will be.

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