This morning, fintech startup Affirm announced a new $100 million credit line from Morgan Stanley. The money will go directly to supporting the company’s current financial products that help customers purchase goods and spread their expenses over a period of time.
Morgan Stanley is not the first institutional lender to issue a line of credit to the company. In May of 2015, Affirm closed a line with Jefferies as part of a round that consisted of both equity and debt. Affirm disclosed at the time that the capital totaled $275 million but declined to disclose the debt to equity breakdown of that figure.
“Today’s credit line is an indication from Morgan Stanley that they believe in our credit and underwriting practices,” said Jeremy Solomon, head of capital markets for Affirm.
Solomon noted that the company’s current short-term loans will be the primary benefactor of today’s credit and any new products would need additional debt from diversified institutional investors to propagate. A syndicate was not needed in this round as Morgan Stanley was willing to fulfill the entire transaction.
Like most fintech companies, when Affirm first began issuing credit, the company had to use equity as its primary method for financing until it could prove to larger financial institutions that it had an understanding of its customers’ risk profiles.
CEO of Affirm, and former co-founder of PayPal, Max Levchin has steered Affirm since its founding in 2012, raising $525 million along the way. To date, all loans remain on the company’s balance sheet. Solomon explains that this was deliberate to prove to outside investors that the team is fully invested in their idea and willing to bear the risk.
Importantly, however, Affirm doesn’t underwrite and service its loans by itself. It works in association with Cross River Bank to provide loans to customers ranging from $50 to several thousand, according to Solomon. The company has tripled its transaction volume over the last year. Affirm also declined to comment on default rates, but insisted that they’re strong.