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Louis Beryl remembers how tough it was to get credit when he was in his 20s, even with a solid résumé and a spotless financial history. “If you’re low risk, you deserve a low interest rate,” insists the Harvard MBA and former Wall Streeter, now 33.
When he became a partner at venture capital firm Andreessen Horowitz in 2012, he hoped to find a financial technology startup involved in building what he calls “the modern bank for the next generation of consumers.” He didn’t. So in 2013 he founded Earnest, an online lender of low-cost personal loans to financially sound applicants. His co-founder was Benjamin Hutchinson, a finance exec who had worked at the U.K.’s HM Treasury during the banking meltdown.
San Francisco-based Earnest has launched in 19 states and closed $15 million in financing from Andreessen Horowitz, Atlas Venture, Collaborative Fund, First Round Capital and Maveron, as well as more than 15 angel investors. Earnest has loaned approximately $2 million to young people who need cash for moving costs, weddings, home repairs, vacations, furniture and the like. Beryl, who serves as CEO, expects that number to hit $10 million by year’s end.
The lender assesses each loan applicant as an individual, not a number, he explains. “It’s not just, ‘Do you have this credit score?’ Or, ‘Do you make this amount of money?’ For us, it’s really about, ‘Are you financially responsible?’”
The company’s underwriting software pulls data from the applicants’ LinkedIn profile and financial accounts, evaluating education, work history, salary, savings, cash flow and earning potential, and Earnest staffers review each prospective client by phone. Loans are typically fulfilled within 48 hours of application.
Earnest recently began offering larger loans, longer repayment periods and both lower and higher interest rate loans “in order to serve more people,” according to Beryl. One-, two- and three-year loans are available, ranging from $2,000 to $30,000, from 4.25 percent to 9.25 percent APR. The company charges no origination, prepayment or other fees. “These aren’t teaser rates,” Beryl stresses.
The Earnest founders felt it was essential to partner with VCs that supported their commitment to customer value and weren’t just looking for a quick exit. Like all the company’s investors and advisors, Bill Trenchard, partner at First Round Capital, which contributed an undisclosed amount, was onboard with Earnest’s mission.
“It was a gap in the marketplace that seemed wide open,” Trenchard says, citing the availability of customer data and pointing out that traditional banks are too mired in regulation to take risks. San Francisco-based Trenchard has also invested in online lending platforms OnDeck and Lending Club.
Since raising the $15 million, Earnest has grown from a team of five to 25. Most of the staff are software engineers, designers and data scientists. A small “client happiness” team works the phones, answering questions about the application process and helping existing customers. “That’s the team that’s most likely to grow the fastest as we expand,” Beryl says.
By year’s end Earnest will offer loans in 25 states and in all 50 by 2015. Keeping customer costs affordable throughout will remain a priority. “We’re building a 100-year company,” Beryl says. “We want our clients’ happiness to be so good that their grandkids will be our customers.”