StreetShares’ Unique Focus Gives Them an Edge in the Small Business Lending Market

Last month we learned that small business lender, StreetShares, closed on a $23 million Series B. This got us thinking. Several other small business lenders such as Dealstruck, Bond Street, Bizfi and Able Lending have all closed up shop while StreetShares continues to thrive. We were curious to find out why so we called Mark L. Rockefeller, the CEO and Co-Founder of StreetShares to find out more (you can listen to my podcast with Mark and fellow co-founder Mickey Konson here).

When we asked him what his company has done right he pointed out three things:

  1. They picked a specific niche rather than the broader market.
  2. They focused on borrower acquisition costs
  3. They stuck to their credit model and never loosened their underwriting.

“One of the challenges of typical venture backed lending companies is that there is a constant pressure to grow originations,” said Mark. “And when your revenue primarily comes from an origination fee the temptation is to keep the growth going even at the expense of loan quality. That is not a recipe for long term success.”

StreetShares has been fortunate to have backers such as Accion and Fenway Summer who are patient and have different expectations to many of the Silicon Valley folks.

Their laser-like focus on the veteran community has also helped StreetShares grow. Because they are a veteran-owned company providing financing to the veteran community they have a strong competitive position in the market. It would be very difficult for any company to compete directly against them.

They consider themselves a kind of credit union for the military. This permeates all areas of their business. It also helps with loan performance. When a veteran knows that other veterans are funding the loan they are less likely to default. There is a unique connection between veterans that StreetShares is leveraging that enables them to provide better loan pricing than they would otherwise.

On the investor side StreetShares also has a unique offering. Their Veteran Business Bonds is a unique Reg A+ offering (we wrote about it here) for non-accredited investors that pays 5%. They have done very little marketing of this product although they do have a special promotion right now where they are giving investors a bonus of up to $2,000. Of course, they also have a number of large institutional investors as well as individual accredited investors, of which I am one.

The most interesting new development at StreetShares, from my perspective, is the addition of government contract financing. It was introduced late last year and I have to say I am a huge fan. This is basically an invoice finance product but for federal government contracts. Many veteran-owned businesses have government contracts but as you can imagine these contracts are not paid in a timely manner. This can really hurt the cash flow of these businesses.

Enter StreetShares contract financing. They will advance these veteran owned businesses the cash they need and then go about collecting from the government. They only allow invoices that have been approved by the government so you are in effect taking the credit risk of the US government but being paid 12% for that privilege. That is why I think this is the best risk-reward investment in the industry today.

When I asked Mark about the profitability of StreetShares he said they are not there yet. This new cash should see them through to breakeven which will happen in about two years. They are using this cash primarily for marketing and tech enhancements.

I have been to the StreetShares offices just outside of D.C. a couple of times now and I have always come away impressed. The offices are not flashy at all, in fact quite the opposite, they demonstrate a company that is being careful with their money. But the energy in the office is different to most other startups I have visited (and by this stage I have visited well over 200 companies all over the world). There is a sense of purpose at StreetShares and I get the feeling that the employees, many of whom are veterans, are completely committed to the StreetShares cause.

This commitment and the military values of honor and determination will serve the company well as it meets what will no doubt be additional challenges on their way to becoming an established business. To be thriving today in a more challenging fundraising environment clearly they are doing some things right.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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