SoLo Funds wants to replace payday lenders with a community-based, market-driven model for individual lending, and now has $10 million to expand its business in the U.S.
Payday lenders offer high-interest, short-term loans to borrowers who are at their most vulnerable, and the terms of their loans often trap borrowers in a cycle of debt from which there’s no escape.
Around 80% of Americans don’t have adequate savings to cover unforeseen expenses, and it’s that statistic that has made payday lending a lucrative business in the U.S.
Over the past decade websites like GoFundMe and others have cropped up to offer a space where people can donate money to individuals or causes that in some cases serve to supplement the incomes of people most in need. SoLo Funds operates as an alternative.
It’s a marketplace where borrowers can set the terms of their loan repayment and lenders can earn extra income while supporting folks who need the help.
The company is financing tens of thousands of loans per month, according to chief executive officer and co-founder Travis Holoway, and loan volumes are growing at about 40% monthly, he said.
While Holoway would not disclose the book value of the loans transacted on the platform, he did say the company’s default and delinquency rates were lower than that of its competitors. “Our default rate is about three times better than the industry average — which is the payday lending industry that we’re looking to disrupt,” Holoway said.
The company also offers a sort of default insurance product that lenders can purchase to backstop any losses they experience, Holoway said. That service, rolled out in April of last year, helped account for some of the explosive 2,000% growth that the company saw over the course of 2020.
SoLo has seen the most activity in Texas, Illinois, California and New York, states with large populations and cities with the highest cost of living.
“Our borrowers are school teachers… are social workers. When you live in those larger cities with higher costs of living they can’t afford the financial shocks that they could if they lived in Dayton, Ohio,” said Holoway.
While the company’s borrowers represent one cross section of America, the lenders tend to also not be hailing from the demographic that a casual observer might expect, Holoway said.
About half of loans on the platform are made by folks that Holoway called power lenders, while the rest are coming from less frequent users.
“A majority of [power lenders] are college educated and the majority of them tend to be white men. It’s individuals who you might not think are going to be power lenders… They may make $100,000 to $125,000 per year,” said Holoway. “They’re looking to diversify their capital and deploy it to make returns. And they’re able to help individuals out who otherwise would not be able to pay for groceries, paying rent or taking care of their transportation expenses.”
Given the company’s growth, it’s no wonder investors like ACME Capital, with support from Impact America Fund, Techstars, Endeavor Catalyst, CEAS Investments and more joined the new round. previous investors like West Ventures, Taavet Hinrikus of TransferWise, Jewel Burks Solomon of Google Startups, Zachary Bookman of OpenGov, Richelieu Dennis of Essence Ventures and tech innovation accelerators also participated in financing the company.
“For too long, there have been limited options for individuals in need of immediate funds due to unforeseen circumstances, like a shift in hourly schedules, unplanned car troubles or other cases,” said Holoway. “SoLo was created to offer safe, affordable options for borrowers that need cash quickly, while also creating a marketplace for lenders to grow capital and help community members in need. We believe that at the end of the day, people are innately honest and tend towards generosity, and our platform’s growth is further proof that people want to do good in the world and make an impact.”