Biz2Credit Sets Stage for Securitization
Among alternative business lenders, it appears OnDeck Capital isn’t alone in its quest to go after securities. Biz2Credit, a New York-based online credit broker that connects small businesses with lenders, plans to securitize its small business loans before the end of this year.
Biz2Credit’s loans would differ from those of its competitors, with the goal being longer terms and lower pricing for customers through securitization, says co-founder and CEO Rohit Arora.
Whereas typical alternative business loans come with an average APR of 50 percent or more, Arora wants to keep APRs more in line with what credit cards are charging. Biz2Credit plans to provide loans with APRs as low as 12 percent. And compared to the 12-month terms competitors offer on average, Arora expects to write loans with terms of up to five years.
“Normally in the securitization market, people are looking for products that have a medium maturity rate. Twelve months is too short of a maturity period,” he says.
Offering longer-term products would also keep investors from having to constantly roll over their funds every 12 months. “Investors will allocate more money and for a longer period of time,” Arora says.
Arora contends that the lower APRs would help shield investors from any potential usury laws, as it remains unclear whether these laws apply in the alternative business lending space.
Biz2Credit’s strategy is to focus on the middle market, between the bank loan and the merchant cash advance. Arora estimates this middle space to be a $100 billion market annually. With the economy improving, small businesses are seeing their cash flows stabilize but are still unable to get bank loans. Yet, they don’t want to get stuck with a high-cost loan, either.
“There’s less desperation to borrow money at any cost. More businesses want to borrow money for growth, rather than survival now,” Arora says.
Having offered small-business credit for the past six years and facilitated $1.2 billion in lending with a default rate of less than 1.3 percent, Arora believes the time is right for the company to pursue securitization.
“We want to bring more money into the space. By securitizing, we’ll be able to do that,” he said.
Go to: Previous page | Next page
Go to: | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22
