Borrowers benefit from a peer to peer/marketplace loan too. It's not just for us investors. As a reminder, every once in a while I look at a borrower using a platform and how it helped them out.
Jenny (not her real name) is someone I know with an e-commerce business. She sells on her own website as well as on Amazon. She has a great niche product for pets and dog lovers love it. Like many people who sell a successful product online, she found her product in the most natural way possible; it was something she needed for her own dog and did not see it available on the market. She has a Scottish terrier who looks kinda like this picture below and is a really fun, playful dog.
He's a cute little guy.
If you think technology has moved non-banking companies ahead of banks and traditional financing, the changes are even greater in retail thanks to the internet, e-commerce and Amazon. Drive by your local mall and see the impact of these changes for yourself.
The Problem: A Great Problem to Have
Jenny has been in business for 2 years and is making a great success of her e-commerce business. A regional retail chain with 75 stores in her part of the country loves her product and wants to sell it in their stores. They have a minimum order size, known as a MOQ (min order quantity) of 15,000 units.
In order to be successful in retail, even online retail, you have to move a lot of product and Jenny does. If Jenny had 90 days to pay, then she could do it out of her own cash flow.
But she doesn't. She needs to deliver the product to this chain as quickly and easily as she can upfront before a single unit is sold.
Jenny has the cash flow to pay over a few months but who will lend her the money?
Banks and conventional finance companies have no idea how to value a retail business with no retail locations like Jenny. A bank is incapable of assessing her business to see if it is risky or not. Even if they did, banks don't lend to 2-year businesses almost regardless of the need and especially not for inventory.
So where did Jenny go?
The International/Overseas Solution
If Jenny was not a US citizen or was selling in a foreign market like Amazon UK for the English market, then I would have recommended to her that she use my friends over at Bitbond. Bitbond does its loans and repayments in Bitcoin and they love doing cross-border lending for online retail. It's their specialty. With the success and cash flow of her business, she'd get an excellent loan rating meaning a low rate for her loan with up to 3 years to pay it off.
Are you a small business selling across borders? Then check out Bitbond
The Domestic Solution (What She Did)
Jenny doesn't live or sell overseas, this is a US only type of deal. What Jenny really needed was a line of credit that she could pay down as her new chain store sales along with her online sales generate the cash to pay the line off. Inventory needs change so the flexibility of a credit line makes more sense than a fixed term loan where this one need is paid off over a 24 or 36-month term and she can't borrow again. Plus she can borrow off the line again for additional inventory (or other working capital needs) as the need arises once she pays it down.
So what Jenny needed was:
- Line of Credit preferred to a loan
- Someone who understands the value and growth of an online business
- Someone who would lend to a 2 year old business
- Not personal credit driven (her credit was OK but took a couple of hits like most newer entrepreneurs)
- Easy application process (online preferred)
- Fast decisions. A slow Yes is worse than a fast No in Jenny's situation since she has to act fast to get the product into stores.
- Application Requirements clear and transparent. Jenny didn't have time to mess around with a program where she had NO chance of getting approved and funding.
The marketplace lending platform that had all of these factors for Jenny is Kabbage.
Kabbage is based in Atlanta, GA and they were named a top 50 disruptor in 2016 by CNBC.
Aside from the 7 things listed above, Kabbage also
- Issues lines for a 12-month term
- Does require a personal guarantee (Most do)
- Minimum 1 yr time in business
- No closing fees, No origination fees and No penalty if you pay the line down early
- As a line of credit, you only pay for what you use
- You pay a fee rate (which is based on Kabbage's equivalent of a loan rating/scoring) and a 1% fee monthly on your outstanding balance
- Lends up to $100,000
Jenny told me that applying was easy and fast. She filled out the app online and linked up her Amazon account, Paypal account and her primary bank account so Kabbage could see how her business was doing and how much cash it has. Kabbage pulled her Experian credit report and got the rest of the info through APIs to get to a nearly instant decision of approval.
APIs and other user-friendly interfaces to make it easy for non-techies like Jenny and me to use them. These APIs are great cause they are fast and completely transparent to both sides. There's no thinking about and handwriting on an application the 'oh I think I have about 10 grand in my account' when you really have $250.
Simple, transparent, and fast. That's what Jenny needed. And financing of inventory.
Jenny got the funds she needed from Kabbage and she was able to fulfill the order, starting what she hopes is a long-term mutually profitable relationship. She was able to grow her business and get financing through a marketplace platform when she knew her bank would say No. Kabbage uses technology to get the information they need and doesn't require mounds of paperwork that a bank does for an uncertain outcome.
Jenny got her loan recently so I don't know if she will be one of the ~80% of current Kabbage users that borrow again with them but I wouldn't bet against it. As a non-US person or selling overseas, I would recommend Bitbond and for a typical US specific situation like Jenny's I would definitely recommend you give Kabbage a try.