Another lending upstart has declared that joining banks—rather than beating them—is the way to go.
Fundation Group LLC, which makes online business loans, this week completed a $100 million credit facility with Goldman Sachs Group Inc., according to the lender’s chief executive.
The new credit line will help the firm expand its recent partnerships, including those with traditional banks, such as Regions Financial Corp. and a network of community banks, to extend loans to the banks’ business customers.
Fundation, launched in 2013, is the latest hopeful lending startup to argue that joining with banks to fund loans and find customers is a better model than seeking out customers by advertising on the web and then selling the loans directly to investors, the so-called marketplace model.
“Marketplace lending was going to change the state of banking, but that’s not really the case,” said Fundation CEO and co-founder Sam Graziano, a former investment banker at Centerview Partners and Keefe, Bruyette & Woods.
“It’s saturated. Hundreds of platforms are going after the same pool of customers,” he said. “We decided to be an integrated partner of the banking system.”
Other startup lenders, including On Deck Capital Inc., Kabbage Inc., and LendingClub Corp., have likewise joined with banks, but also seek to get borrowers to apply directly through their websites and mobile apps.
Marketplaces have had a difficult 2016, finding fewer buyers for their loans. On Deck, for example, has moved to fund more of its loans with its own capital, rather than selling them, citing tough market conditions.
Mr. Graziano describes Fundation as a “credit solutions provider” rather than a lender, providing digital tools like online applications and data-intensive credit algorithms to partners. “It’s not a disintermediation story, but we can still help make more loans,” he said.
Through its partners, Fundation offers term loans of up to $500,000 with annual rates under 30%. It keeps a small percentage of the loan as a fee, and makes money from the loans it holds with its own capital.
It isn’t yet clear whether bank-partner lenders can grow as big as marketplaces, which originated billions of loans last year. Mr. Graziano declined to provide total lending volume or revenue figures.
In addition to banks, and a small amount via its own website, Fundation partners with business-service providers such as Wolters Kluwer N.V. to make loans. It also recently began working with the U.S. Department of Commerce’s Minority Business Development Agency to facilitate lending.
Fundation is majority owned by Garrison Investment Group, a credit investment firm. Garrison was an early institutional investor in LendingClub loans. The company initially holds loans before selling them to bank partners, who in some cases agree to buy them in advance, and in other cases have an option to do so. Fundation will now place a portion of the loans it holds with Goldman in the new credit facility. The Wall Street firm will also be paid a fee in the arrangement. The loans could later be sold to investors via securitization, but there is no current plan to do so, Mr. Graziano said.
Fundation combines the benefits of a bank loan with the ease and efficiency of an online lender. We offer conventional loans with competitive rates to businesses with varying credit profiles. Our technology allows us to deliver capital in as few as 3 business days through streamlining the collection and evaluation of customer information and conducting the majority of the lending process electronically. As a direct lender, we use our own capital to originate and hold the loans we make, so that we can focus on building relationships with our customers. Our dedicated customer relationship model enables us to understand each unique borrower’s business. This level of service, coupled with our best-in-class products, is why many of our customers come back to us repeatedly for more capital.