Crowdfunding

Collaborative Lender Able Joins the Online Lending Fray

Amy Cortese | August 25, 2015

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When Jae Kim started his food truck, Chi’Lantro, five years ago in Austin, he wasn’t sure how people would take to his Korean-inspired BBQ. But Austinites gobbled up the bulgogi burgers, tacos and kimchi fries. So much so that the Korean-born entrepreneur (pictured above) decided it was time to open up a non-roving restaurant.

Rather than apply for a loan from a bank, which generally consider food businesses too risky, Kim turned turn to a local funding platform called Able, raising $100,000 to open his first restaurant.

Able, which opens its doors nationally today, is the latest entrant to the online lending market. But in a sea of look-alike lenders, Able stands out, thanks to a model that blends elements of crowdfunding and online lending. Able founders Evan Baehr and Will Davis call it “collaborative lending.”

Evan Baehr
Evan Baehr

It works like this: A small business fills out an online application on the Able site, where it is reviewed, along with a credit check, a thorough assessment of the business’s financials, and a look at its social media profile. Once approved, the business then must typically get three to five backers—whether customers, friends, family or other supporters—to put up 25% of the loan amount. (The business owner negotiates those rates and terms separately, using the Able platform to manage the process).

Once they meet that threshold, Able extends the remaining 75% of the loan—up to $500,000. Interest rates range from 8% to 16%.

In Chi’Lantro’s case, a customer and a family member put up $25,000 and Able loaned $75,000. The blended interest rate was 8.8%.

Call it collaborative lending or social underwriting, but the idea is that a vote of confidence from a borrower’s network can add credibility and give them more incentive to pay back a loan. The same principle is being explored by KivaZip, the domestic loan program of the microlender best known for lending to small entrepreneurs overseas. KivaZip requires borrowers to have a “trustee” in the community vouch for them or, alternatively, to persuade several of their own supporters to lend to them.  But it makes no-interest loans, and the loans, made by individuals, top out at $5,000 for first-time borrowers.

“Backer capital is a huge signal to us that you’re someone whose customers and acquaintances know and believe in you,” says Davis. “More importantly, we know that when you know your lenders, when you’re in a community with them, those become assets to you in little and big ways.”

In addition, the founders say their model of underwriting measures risk better and prices loans in a more affordable, personal way.

Will Davis
Will Davis

In Austin, where Able has beta-tested the service for several months, it has made $3.5 million in loans to 24 borrowers, including breweries, food producers, apparel makers, and a coworking space. These businesses have brought in approximately 75 different personal backers that have put up close to $1M of capital into the Able platform.

Although it is still very early for Able, it has had no defaults to date. And for companies such as Chi’lantro, the capital has given them a big boost: Kim recently opened a second restaurant in Austin.

Baehr and Davis hope to create deeper relationships between borrowers and backers, and among the broader Able community. “Most people come to us because they want more than a loan,” says Baehr.  The company encourages members of its borrower and backer community to support each other though social media and other means. And the company devotes the first Friday of every month—“Ask Able” day—to taking calls from small businesses and offering advice and consulting. To date, over 40% of Able’s customers have come through referrals.

The Able founders hope the personal touch will set them apart. “No one has ever tweeted out they got an OnDeck loan or Funding Circle loan,” quips Davis.

Their goal is to make $100 million in loans over the next 18 months.

Able works with financial partners, such as Garrison Point Capital, to fund the loans. Able and its financial partners are senior in the loan structure, meaning that a borrower’s backers take first loss in the case of a default. In addition, while backers get monthly interest payments, they don’t receive principal payments until the senior debt providers are paid back in full.

That may sound like a raw deal for backers. But the subordinate status is a trade-off for the infrastructure and legal support that the Able platform brings to typically informal and sometimes messy friends & family loans, the company says. It makes those terms clear on its web site.

To fuel its expansion, Able recently closed a $6 million Series A round, led by Blumberg Capital and RPM Ventures with participation from Peterson Partners and Expansion Ventures AngelList Syndicate.

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