Lending to Small Business With Endurance Lending Network


Sir Ernest Shackleton was one of the great polar explorers of the early 20th century. His ship was the Endurance. When his expedition was trapped on Antarctica in 1914 he led one of the greatest rescue missions of all time and every member of his crew survived.

This story is inspiring and one that resonated with Sam Hodges and Alex Tonelli. They liked it so much they decided to take the name of their new company from the ship at the heart of this amazing story. So, Endurance Lending Network (I will shorten to Endurance) was born.

Endurance Lending NetworkThe roots for Endurance go back to 2011 when Alex Tonelli was trying to get a business loan for his successful fitness center business. He was rejected for a $75,000 loan even at a 20% interest rate. Discussing this experience with one of the gym’s investors, Sam Hodges (who had experience with financial marketplaces from his time at SecondMarket), the two hit on a way of addressing this pain point: build a marketplace for small business loans.

Together Sam and Alex raised a $1.5 million seed round in the spring of 2012. This allowed them to build out their platform and their team. The first loan issued by Endurance was closed in April 2012 and they spent the rest of that year honing their online borrower platform, setting up their regulatory framework and building a backlog of interested lenders.

In my recent conversation with Sam Hodges he was very careful not to give away their current loan volume he did say that in July they processed 600 inbound loan applications and a meaningful share of these were fundable.

The Median Loan Size is $155,000

So what kind of business loans are we talking about here? These are all three-year loans with interest rates ranging from 10.9% to 14.9%, with the average being at the higher end of that range. The loan sizes range from $25,000 to $500,000 and the median loan size right now is $155,000. There is a flat 2.99% origination fee on every loan.

Around half of the loan applications they have received are from franchisees, particularly established players like Subway and Papa Johns. They like this market and they have deliberately focused here because failure rates are much lower than for the overall small business market and because they can build deep partnerships with the franchise parents.

Like Lending Club and Prosper these are amortized loans that are payable in monthly installments over three years. But unlike the consumer p2p loans these are secured loans. Endurance is typically the senior secured lender with one or more personal guarantees from the business owners as well as security interests in the business assets (such as equipment), which they substantiate through UCC filings.

Zero Percent Delinquencies

Given all this I was curious about defaults. They have an expected loss rate of 0.5% to 1%, far lower than Lending Club and Prosper. I was initially skeptical of this projection until I asked for details about their current portfolio.

Now, keep in mind their oldest loan was issued only 15 months ago and the majority of their portfolio is less than six months old. But when I asked what percentage of their portfolio has defaulted or is late I was very surprised to learn that every single loan is current. That’s right, no late loans and no defaults. Of course, they don’t expect it to stay this way forever but right now they are very pleased with their results.

A Rigorous Underwriting Process

To achieve a zero delinquency rate, even at this early stage, points to strong underwriting. Endurance uses a multi-factor scoring engine for both the business owners and the business entity itself. It uses a combination of self-reported data from the founders as well as external data.

They use traditional finance data such as balance sheets as well as income and cash flow statements. Some of this is self-reported but they also are hooking into the Intuit APIs for personal and business data (from Quickbooks). They will also use plenty of alternative data such as LinkedIn profiles (mainly for identity verification) as well as Yelp business ratings.

Borrowers can receive a preliminary approval within 24 hours of their application with final approval coming anywhere from 2-10 days depending on how quickly the borrower responds to verification requests. An Endurance team member will personally speak with every borrower.

What is in it for Investors?

Endurance is open to accredited investors with a minimum investment size of $50,000. Expected returns to investors right now are in the 13.7% range. This is achieved by a very low loss rate and the fact that today Endurance is sharing some of their origination fee with investors. Once that incentive program ends long-term returns for investors in the future should be 12-13% on the current product – and potentially even higher on less highly-rated loans.

Today there is no marketplace of loans for investors. Instead, there is a pooled investment structure where capital from investors is accumulated and then drawn down to fund borrower loans. This means there is no mechanism in place yet for investors to choose loans, although they are working on developing one.

In the near term Endurance expects to have three options for investors:

  1. Pick and choose loans in on open marketplace.
  2. Create an automated investment allocation based on various criteria.
  3. Pooled investment structure.

Vision for the Future

Endurance is focused on a very big problem – helping small businesses get access to capital. Their vision is focused but grand: they want to be the premier small business bond marketplace in the United States.

Eventually, they will be open to all investors, not just those who are accredited. Whether that is through an S-1 registration, like Lending Club and Prosper have done, or through the creation of a publicly listed fund is undecided. But one thing they are clear about – they want every investor to have the opportunity to help provide funding for small businesses.

At 15 months old, Endurance is one of the more established online small business lending platforms. They have made a great start to their business laying what appears to be a solid foundation to build upon. This foundation was supported recently with the addition of Glenn Goldman to their Board of Advisors. Goldman is the former CEO of Capital Access Network, the largest non-bank provider of capital to small businesses in the US.

The team at Endurance no doubt has some obstacles ahead of them in establishing themselves as a major player in small business lending. But they draw their inspiration from that intrepid British explorer Shackleton who overcame almost impossible odds in the face of incredible hardships. The waters that Endurance Lending Network need to navigate should be far less challenging.


This article is provided for information purposes only. It is not investment advice nor is it an endorsement for investing in the loans of Endurance Lending Network. I have not made any investment myself (although I do intend to) and I receive no financial reward from Endurance Lending Network whatsoever.

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Aug. 6, 2013 6:51 pm

Small business loans are certainly ripe for the P2P treatment. The small biz I work for had a terrible time getting a loan a year or two ago after the previous bank we had a loan from decided to call the note unexpectedly on our previous loan. Never missed a payment.

Dan B
Dan B
Aug. 7, 2013 9:32 am
Reply to  Peter Renton

Yeah, I know of a similar situation. I knew a guy who owned 5 or 6 amusement park/game center/go kart/miniature golf etc locations in the Midwest. He’s one of those guys that made a lot of money & spent what he made…………cars, boats, you name it. So he ran his business on this huge line of credit with a bank that he had done that specific business with for over 20 years. When 2008 came around they out of the blue yanked his entire credit line without any real advance notice. He was unable to get any type of credit line to even remotely come close to replacing the credit that was lost (I recall he mentioned that another bank offered a credit line that amounted to less than 10% of his former line) & though I’m not going to say “they” put him out of business………………they made it difficult enough to continue that he eventually just gave up & closed everything except the location closest to his residence.

Dan B
Dan B
Aug. 7, 2013 5:51 pm
Reply to  Peter Renton

Though on a smaller scale, my previous businesses have been self funded, so I have no experience dealing with lines of credit. Apart from the important advantage you mentioned, I’m not sure how practical it’d be to take out fully amortized loans over & over again during a 20 year period. The guy I mentioned had a $3 million line of credit that he used on & off…………….& since his business was highly seasonal, there were more than a few months of the year where he didn’t need it at all. But still, having your business hang precariously like that on the whims of a bank seems unwise, especially when arrangements could have been made over time to stash some money & not be in that position. But hell, who am I to talk. I never saved a dime until 5 years ago.

Aug. 6, 2013 11:56 pm

I know Shackleton! He was enthusiastically telling me all his adventure stories over a dinner the other day! No just kidding. But, I like your information on yet another P2P investing opportunity, although not for me yet. But you never know. One day it may change. Sorry for my ignorance, but what exactly does the term “accredited investor” in this case mean? You might have said that somewhere, but I think I missed it.

Bryce M.
Aug. 7, 2013 7:13 am
Reply to  Martin

For individuals, it means $200,000 income for the last two years or $1,000,000 net worth excluding your home. Couples need $300,000 in income.

Sep. 12, 2013 3:02 am

What is the total amount of loans outstanding? What is the total potential demand? $1B-$5-$10B? I don’t know this business but would like to structure guarantees to raise capital from the High Grade Fixed-Income community, pay them 2%-4% for 5yrs. with principal and interest guarantees and then generate risk capital to lend to this market….thereby using risk capital to invest. Peter are you interested in such a business or know some who is? I will pay the 2%-4% to the fixed income investors…they will not be exposed to the operating business…under a Bankruptcy Remote Transaction within a Structured Finance model. This would not be a matter of resources…Foreign Treasury holders looking to increase their yields can earn an additional 2%-4% that I can then cashflow to generate risk capital to provide loans to this sector. Email me.