Able Lending Puts a New Twist on Peer to Peer and Crowdfunding
Over the past few years one of the up-and-coming FinTech models is what’s known as peer to peer (P2P). This term has been used to describe platforms like Lending Club that allow investors to contribute to fulfilling loan requests in return for a share of the interest earned on the loan. Meanwhile in a similar but different space are crowdfunding sites like Kickstarter that seek to raise funds for various projects and products. Now one small business lender is looking to combine those two FinTech segments, while also adding in some institutional funds for good measure.
Able Lending bills itself as a “collaborative lender.” What does that mean? The company offers a number of loan products, including some of which involve contributions from your friends and family. For example their Friends and Family loan option allows those in your network to lend you money for your business but does so in a more formal way, including earning interest on the loan. In fact borrowers can actually set the interest rate themselves in order to attract lenders. These rates can start as low as 2% and go up to 25%.
Another option for small businesses is what Able calls their Growth loan. It starts with a similar process —raising money from friends and family. However, in this case, those funds only make up a portion of your overall loan amount (between 10 and 50 percent). Interest rates for Growth loans start as low as 8% and have terms of one to five years.
Incidentally this model is actually somewhat similar to one Kiva introduced in the U.S. in late 2015, although there are some major differences. For one Kiva Zip’s “social underwriting” loans are interest-free for up to 36 months. Additionally, after the friends and family round, the loan is then funded by other investors instead of being fulfilled by the platform itself, as is the case with Able.
According to their site Able’s goal is to “Fund the Fortune 5 Million.” In order to do that the company is currently looking to partner with startup accelerators and banks whose participants and customers could benefit from Able’s services. Additionally, beyond the two aforementioned loan options, Able offers loan refinancing and backer-free loans, which are available to businesses with strong credit histories and positive cash flow.
So could “collaborative lending” become the new P2P or crowdfunding? It stands a good shot considering that Able Lending proclaims its borrowers save an average of $31,000 on loans between $25,000 and $1,000,000. More importantly Able suggests that their model helps prevent delinquencies and defaults. As CEO Will Davis recently explained to Lending Academy, “We have three companies, for instance, that have gone under and have paid us back in full. The reason they paid us back is because they said, ‘we do not want to default on our friends and family’ and so even though that’s not empirically enough evidence to prove that the model is working, it’s a very strong anecdotal evidence.” With that, I’d expect to see Able forming more partnerships and gaining more investors in the coming months and years as their unique lending model grows in popularity.