Goldman Signs $100 Million Credit Facility for Online Lender Fundation
August 23 2016 - 10:10AM
Dow Jones News
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.
Write to Telis Demos at telis.demos@wsj.com
(END) Dow Jones Newswires
August 23, 2016 09:55 ET (13:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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