Possible Finance Reaches $ 10.5 Million To Offer Consumers Smoother, Softer Short-Term Loans – TechCrunch
It’s easy to be skeptical of credit companies. They consistently rely on customers who don’t have enough money to cover their bills and are willing to pay interest on borrowed money in exchange for capital they can spend sooner, sometimes immediately.
Unfortunately, consumers with the worst credit, or no credit at all, sometimes find themselves with few options other than working with payday lenders who typically charge surprisingly high annual percentage rates. Until recently, for example, the state of Ohio had the dubious distinction of allowing payday lenders to charge higher rates than anywhere else in the country – with a typical ARR of 591%.
This is one of the reasons that venture capitalist Rebecca Lynn, managing partner of Canvas Ventures and early-stage investor in online lending firm LendingClub, has largely avoided the many startups that have crammed into the industry. these last years. It’s also why she just led a $ 10.5 million investment in Possible Finance, a two-year-old Seattle-based company that does what it “thought was impossible,” she says. The startup “helps people at the lower end of the credit spectrum improve their financial outlook without being predatory.”
At the very least, Possible charges significantly less interest on loans than some of its rivals. Here’s how it works: A person opens the company’s mobile app, through which they share the bank account they need to have to get a loan from the startup. Based on their transaction history alone – Possible doesn’t verify whether or not this person has a credit history – the company makes a quick, machine-learning decision about whether a loan is worth taking taken. Assuming the borrower is approved, he then transfers up to $ 500 to that person instantly, which can be paid in installments over a two-month period.
These repayments are reported to the credit bureaus, helping that person build or rebuild their credit rating.
If the money cannot be repaid immediately, the borrower has up to 29 additional days to pay it off. (Federal law requires a late payment to be reported to credit bureaus when it is 30 days past due.)
Possible has immediate advantages over some of the many loan sharks. First, it gives people more time to repay their loans, whereas traditional payday lenders only give borrowers 30 days. It also charges APRs in the range of 150% to 200%. This may still seem high, and borrowers owe it even if they repay their loans earlier than expected. But as Tony Huang, co-founder and CEO of Possible, explains, the company must “charge a minimum amount of fees to recoup our loss and pay off the loan.” Smaller notes have more fixed costs, which is why banks do not offer them.
More important to Lynn, traditional payday loans are structured so that these payments do not affect credit scores, often trapping consumers in a cycle of borrowing at excessively high rates from shady issuers. Meanwhile, Possible, she believes, is giving them a way out of that path.
Still, Possible has another benefit: the apparent blessing of Alex Horowitz of the Pew Charitable Trust, who guides research for Pew’s consumer finance project. As Horowitz tells us, his group has spent years examining payday and other major subprime loans, and one of their key findings on these loans “isn’t just interest rates or APRs. are high, but they are unnecessarily high. “
In fact, while payday lenders have already warned that they will be leaving some states that set price limits on what they can wrest from their customers, “one kind of remarkable discovery is that states are setting prices up.” at four times lower – and these lenders are still coming in and providing credit.
Horowitz credits Possible with not setting the price of its loans to the ceilings set by these states. “Usually,” he explains, “customers are price sensitive, so if one lender comes in two to three times cheaper than the others, they’ll gain a lot of customers. This is not true in the market that Possible operates in, says Horowitz. Customers focus on how quickly and easily they can get a loan, which makes it “unusual for a lender to offer loans at a much lower price than their competitors.”
Note: Ohio, which once allowed payday lenders to commit murder, is one of those states that has more recently put in interest rate caps, with a new payday loan law. which entered into force at the end of April. It is now one of six states where Possible operates (“with many more to come,” says Huang).
Possible, which currently employs 14 people, has processed 50,000 loans on behalf of users since the product launched in April last year. It finances the loans with institutional debt, most notably from Columbia Pacific Advisors, which is also an equity investor in the company.
With his new round of funding, he has now raised a total of $ 13.5 million, including from Columbia; Union Bay Partners; Unlock Venture Partners and angel investor Tom Williams.