I first wrote about BorrowersFirst eight months ago when I spent a day in their New York offices. They expected to launch in the fourth quarter of last year but things were put on hold as they got their financing together.
The good news is that the financing is now in place. At LendIt 2014 this morning BorrowersFirst announced they have received significant equity and debt funding from SF Capital Group in a deal that closed last month.
What is Different About BorrowersFirst?
As a result of this deal Neil Wolfson is now Chairman of the Board for BorrowersFirst and Jonathan Ende is no longer with the company. I chatted with Neil Wolfson just after the deal closed and I was impressed with many of his ideas.
“One of the problems with online lending platforms today”, Wolfson said, “is that they don’t eat their own cooking. By this I mean they don’t invest their own money in the loans they issue.”
At BorrowersFirst they will do just that. They are going to be a hybrid marketplace/balance sheet lender. The way they plan to implement this is vey interesting and unique in the online space.
A Marketplace for Whole Loans Only
BorrowersFirst is not for the small investor. They are focused on high net worth investors and institutions. This is because they are launching with only whole loans, no fractional loans will be made available. So, an investor would need to invest at least a million dollars to build a diversified portfolio.
But here is the really interesting part. They are providing their whole loans to outside investors first. If the investors reject the loan they will fund it with money from their own balance sheet. So, not only are they eating their own cooking, they are only doing so with the loans that others rejected. This demonstrates a great deal of confidence in their underwriting model. And the borrower does not have to worry about their loan not being funded. If they pass BorrowersFirst‘s underwriting criteria they will be funded.
The other advantage of using their own balance sheet is that it gives them flexibility in their underwriting criteria. They intend to eventually take select borrowers down to a FICO score of 600. The unique underwriting model they have created can identify borrowers that are a good credit risk despite a FICO score of less than 660.
Taking BorrowersFirst to Profitability
While Wolfson would not disclose how much SF Capital Group has committed to BorrowersFirst he said it was significant. In fact, he said they have injected enough cash into the business to take BorrowersFirst all the way to profitability. Given the history of this capital intensive industry the cash infusion must be well north of $10 million and possibly a lot more.
Lending Club, Prosper and…BorrowersFirst
Wolfson is supremely confident he has assembled a great team and has the resources to become a serious player in this industry. In fact, he said that by LendIt 2015, which will happen in about a year’s time, he claimed the talk will be about the three main players in the online consumer lending space: Lending Club, Prosper and BorrowersFirst.
That is an easy thing to say but a very difficult thing to achieve. There is certainly no shortage of companies looking to become the number three player today. But I will say this. I have been very impressed with the team at BorrowersFirst – they have experienced people in all the necessary positions. They certainly have a good shot at becoming a significant player in this industry.