Bernard Worthy didn’t have many financing options when it came time to pay for his programming bootcamp’s tuition. Despite having a co-signer, his interest rate was through the roof. After talking to several of his peers, Worthy realized that proper financing with low interest rates was hard to come by for students in bootcamp programs.
Worthy ran with that idea and first came up with a crowdfunding platform — similar to GoFundMe and Kickstarter — to help you get through school with donations from your family and friends.
“What we quickly realized is that donations were really hard to come by in that way,” says Worthy, now CEO of Loanable. “It wasn’t a great Kickstarter-type model, because you don’t have a product to give someone. Justin [Straight] and I were on our way to a retreat and I was pitching him the idea, telling him where we were getting stuck, and he said ‘Have you ever thought about a loan?'”
Justin Straight is now COO at the fintech startup born from this conversation. Loanable simplifies the friends and family lending process. Instead of a verbal agreement that may lead to broken friendships and loan default, the platform allows the student to set up multiple contracts with different amounts, with customizable interest rates and automatic payment transfers, to reach the final amount they need to raise
“Right now we’re focusing on refinance because it’s the biggest market,” says Worthy. “It’s $1.4 trillion in student debt, $37,000 in average student debt upon graduation. What if that high interest rate that you have on your student loan could be cut in half or more with friends and family financing? That’s the basic premise of our target customer right now.”
Their main audience is students in technical, undergraduate and graduate programs and/or graduates looking to refinance their loans.
The flexible interest rate differentiates them from other platforms. As Worthy says, your mom may want to give you a half a percent interest rate, but your uncle may feel more comfortable with a 3 percent rate. The upside? That uncle can get a higher return on his money versus it sitting in a low interest savings account. All of these contracts can be managed from a dashboard with scheduled payments every month to be distributed into all of your outstanding loans.
“We’ve distilled this process that can be unwieldy, where the terms are often unclear or maybe someone has a change of heart, and created a pretty clear process,” says Worthy. “We’ve distilled that entire loan agreement down to about six different inputs. You just need to know your loan amount, your interest rate, and how long you want the loan to be. We give you a calculator to set your own rates.”
Straight’s past experience helping organizations and small communities with micro-finance abroad, including Eastern Europe, Zimbabwe, Philippines, Haiti, Peru and others, came in handy when setting up an alternative lending marketplace.
“How do you keep the capital in the community? How do we actually leverage some of these village savings and loan ideas, where you’re taking existing capital and you’re letting it being leveraged to stay within the networks of the community?” says Straight.
“Every year, 60 percent of millennials borrow money. This generation is facing a larger amount of debt than the generation before and we’re looking to this market to try to solve some of the problems they’re having. Problems of debt are requiring that they delay life events — from buying a house, a car, getting married, and starting a business — because they’re burdened with debt. How do we help them get more money in their pocket while they keep the money in their community, so that they can then continue to access the next stage of life at a lower cost?”
In this way, Loanable goes beyond the usual crowdfunding model by reducing the overall risk. Instead of asking one person for $10,000 for your bootcamp tuition, you can ask 20 people for $500 and set up one-to-one agreements with customizable interest rates.
“We’re focusing on the customer who already is paying somewhere that maybe wants to save money for a house. Or maybe wants to start a family or wants to start a business,” says Worthy. “We can make that more affordable for them on a month-to-month basis, putting more money in your pocket and putting more money in your community.”
While auto-draft helps stay on top of those payments, the Loanable team is clear that they understand that life happens. The agreements are extremely flexible and the terms can be changed by creating new agreements, as long as both parties agree on the new terms.
“We want to set people up for success, and mitigate the risk at that point, prior to engaging,” says Worthy. “The opportunity to negotiate terms and set clear expectations is the first step. We ourselves are not providing that mechanism to now we’re going to throw money or somehow have a collateral. We’re more so on the preventative piece.”
Loanable never actually touches the money — they have a third-party bank partner that handles all transactions through a secure server.
Their revenue model is per loan. You can buy a handful of loans for an affordable price, or if you’re tackling multiple family members, you can buy a bulk package. Following a beta test, 95 percent of the testers said that they would pay the current price to use the platform and would return.
Following their stint at the Google for Entrepreneurs Exchange program at American Underground, the Loanable team hopes to jump into marketing and study their target audience further. To this point, the startup has been bootstrapped, but hopes to raise money to scale product development.
Worthy mentions that growing a B2C startup in the traditionally-B2B Southeast region has been a challenge, but they are hoping to reach out to more mentors and investors within the B2C fintech industry.
“We’re B2B guys. We really feel great about striking those types of partnerships. But from a B2C standpoint, there just aren’t a ton of great examples in the Southeast. And that will happen in time. That is just a matter of time. As it currently stands, we don’t have as great advisors in that space,” says Worthy.
“We’re looking for the networks, from investors to talent, where we can get the right access to the folks who’ve done it before and we can scale this idea. We’re just talking about the United States right now. That’s what’s really exciting about this. We’re talking about one market, one country. I mean, internationally, friends and family financing is way bigger.”