P2Binvestor Creates a New Kind of Bank Partnership

P2Binvestor (or P2Bi for short) is an asset-based small business lender that has been around for a few years. I am an investor and they have been included in my quarterly returns roundup for some time now. Also, I interviewed CEO and Co-Founder, Krista Morgan on the Lend Academy Podcast a couple of years ago. Full disclosure: I am also on their advisory board.

Today, they announced an innovative new bank partnership product that is truly noteworthy. I chatted with Krista earlier today to get the scoop and some background about this new product. It all started at a hockey game about a year ago when she was chatting with a commercial banker. The banker lamented the fact that so many of their customers wanted more money than they were willing to provide. While discussions with that banker did not go anywhere the idea was germinated in Krista’s mind. What if there was a way to partner with a bank on a loan where P2Bi contributed to the deal along with the bank?

When Krista started discussions with San Francisco-based New Resource Bank earlier this year they were immediately receptive to the idea. After several months of back and forth and a couple of initial deals to test out the platform they are ready to announce their new partnership and this new structure to the world.

How These Deals Work

There is a detailed explanation of how this all works in Krista’s LinkedIn post she published today but here is a quick excerpt:

Businesses that don’t qualify for traditional bank financing are evaluated by P2Bi for a partnership loan based on joint credit policy criteria. Qualified businesses are extended an asset-backed line of credit with capital provided by the bank in a senior secured position, and the P2Bi marketplace in the second position. 

So, this is one loan, or line of credit to be precise, but with part of the funding being provided by the bank and the other part by the P2Bi investor marketplace. P2Bi will blend the interest rates from the bank and the marketplace for a lower interest rate for the borrower than they would have received if it was just the marketplace funding the loan.

Here is the really cool part: P2Bi remains the senior lien holder so they are in control if there is ever an issue with the loan. Having said that the bank is in a senior secured position so the bank must be paid in full before any of the marketplace investors get any of their money. But given these are asset-backed loans and in this relationship they are only lending up to 80% of the value of the collateral it is not as risky as it first seems.

My Take

I have invested in two such deals on their platform already and I think this could become really popular. It is a win-win-win where the borrower gets a lower rate, the bank gets to participate in deals they would otherwise miss out on and marketplace investors get more deals to invest in.

We have not seen as many new bank partnerships as I expected we would this year. So, it is good to see a platform getting creative and coming up with a new way to partner with banks. Krista said they would welcome other banks who are interested in expanding their loan book in a similar way. It will be interesting to see if this becomes a popular new model for banks to partner with fintech platforms.

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Hrant
Hrant
Oct. 13, 2017 12:00 pm

Congratulations to Krista and her team on seizing the opportunity to create the first
co venture, and break into uncharted positive territory for banks, P2Bi, investors, and all involved.
Am extremely pleased with the P2Bi’s progress…that’s why I am a very vocal supporter of this fine firm.
Congratulations to all! Future looks very bright for P2Bi!

Lisa Wilhelm
Lisa Wilhelm
Oct. 17, 2017 8:24 pm

Hi Peter, can you please clarify: first lien debt holders typically get paid back before all other debt holders, included senior secured lenders. So the structure where bank gets paid before P2Bi without also being the first lien debt holder is confusing to me……thanks!

Jason Lee
Oct. 18, 2017 7:26 pm

This “micro-mezzanine” structure will definitely be disruptive to the factoring industry. Sharing the safe risk portion with the banks is brilliant! I’m curious how bank underwriters feel about higher leveraged clients?

Congrats to the Ms. Morgan and P2Bi team!

JL