This Startup Will Give You a Loan -- But There's a Twist

This story appears in the November 2014 issue of Entrepreneur. Subscribe »

When the opportunity to buy an established hair salon fell into Hayley Groll’s lap in June, she quickly took stock of her financing options.

The veteran hairstylist was not approved by the online lender she initially contacted. Then she found Austin-based Able, which bills itself as a “collaborative lender.” 

Within three weeks, Groll had a three-year, $105,000 loan, enough to buy Shag Salon and renew its 1,850-square-foot commercial lease for a decade. Even better was her interest rate of 9 percent.

The brainchild of Harvard MBAs Will Davis and Evan Baehr, Able offers business owners one- to three-year loans of $25,000 to $250,000 at 8 to 16 percent interest—but with a twist: Borrowers must raise the first 25 percent of the sum from friends and family. 

“What we’re really doing is trying to find the people who are being missed by traditional banks and even nontraditional online lenders,” Davis says. 

Able conducted a beta test prior to its official launch in June, tweaking the terms and procedures with each loan. The online lender has so far made 50 loans ranging from $5,000 to $150,000, mostly in the Austin area, but has received nearly $40 million in loan requests from ’treps nationwide. The plan, Davis says, is for the 14-person startup to begin financing some of those by year’s end. 

How it works

To qualify for a loan, businesses must be at least 6 months old. Davis wouldn’t stipulate revenue requirements but says Able’s borrowers to date make $1 million or less annually.

After a business owner fills out an online application, Able uses its proprietary technology to assess the company’s bank accounts, cash flow and credit history—pretty standard stuff. What’s new is that Able’s algorithm also looks at a company’s social media following and reviews via Yelp, Facebook, Twitter and LinkedIn. Davis wouldn’t reveal how a business’s online footprint is weighted or what metrics help or hinder an applicant, but he claims that Able receives a more complete picture of a company’s creditworthiness than any bank can acquire. 

“This is really innovative,” says Charles Green, managing director of the Small Business Finance Institute, a resource site for commercial lenders. “You talk to a commercial banker about Facebook, and they don’t even know what it is, except that their daughter has an account.”

Finding backers

Once Able gives the green light, borrowers need to line up at least three backers (friends, relatives, mentors, colleagues or customers) to collectively kick in 25 percent of the approved loan. Backers must contribute at least $1,000 each, and family cannot contribute more than half of the 25 percent. Hairstylist Groll received $30,000 in all from five backers, including three long-standing clients. (Able’s software automatically confirms that backers and borrowers are indeed acquainted.)

Depending how fast the borrower lines up backers, funding can arrive within two weeks of applying, “much quicker than traditional bank financing,” Davis says.

What it costs

In addition to APR rates, Able charges a loan origination fee of 3 percent, but there are no early-repayment or other fees. Borrowers choose whether they wish to repay the loan in one, two or three years, and Able’s platform handles repaying the backers directly.

While Able dictates the APR of its 75 percent loan contribution, the individual backers providing the other 25 percent are free to choose their own interest rates. Able takes their terms and blends everyone’s interest rates into one composite rate. 

“In some cases,” Davis says, “some of the backers come in with a lower APR rate that reduces the overall interest rate of the loan itself.”

Edition: October 2016

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