LendUp Raises $50 Million To Disrupt Payday Lending

Y Combinator-incubated payday loan disruptor LendUp has raised a $50 million credit debt facility from Victory Park Capital. This adds to the $18 million in equity funding LendUp has raised from investors including Google Ventures, Data Collective, QED and others.

LendUp wants to redefine payday lending and make the loan experience for the millions of unbanked Americans more fair and transparent. Rather than force Americans to turn to predatory lenders and banks, with their high interest rates, LendUp wants to give those looking for a speedy fix to a short-term financial need a way to borrow money without hidden fees, costly rollovers and high interest rates.

At a basic level, LendUp is a direct lender (hence the raising of debt) and has created a product that allows small-dollar loans as an opportunity for consumers to build credit and move up the financial ladder. Consumers who have poor or no credit can apply for and receive small-dollar, short-term loans. Borrowers start with up to $250, but can eventually borrow up to $1,000 for a year.

LendUp uses big data to do instant risk analysis and evaluate credit worthiness, weeding out those who have bad credit for a reason from those who may have become victims of the system. As you pay back your loans on time and take courses, you earn points to elevate up the ladder to silver, gold, and higher statuses. As you attain high statuses, you are able to access more money for loans at lower interest rates.

Co-founder Sasha Orloff says that the company has been growing fast and needs more capital to match consumer demand. The startup has been rowing at 10-20 percent month-on-month and has expanded from California to Missouri, Louisiana, Oklahoma, Mississippi and Tennessee and is about to launch in New Mexico. This year, LendUp plans to launch in a new state every two weeks. In 2014 alone, the startup expects to do 300,000 loans.

Many lenders, like Kabbage, Avant, Zest and others, Orloff adds, have raised from Victory Park Capital. He also said that the debt allows the company to invest its equity financing on hiring, expanding to more states, and continuing to build the product.

It’s also worth mentioning that from a business standpoint, online lending is starting to become a competitive space with BillFloat, Zest, Think Finance, Kabbage, On Deck, CAN, Prosper and Lending Club all working on providing loans to consumers and businesses.

What has made LendUp distinct is that its products aim to help many of these unbanked Americans who can’t find a loan, become credit-worthy through education. As we’ve written in the past, the startup is trying to solve the problem at the cause, which is poor financial education.