Groundfloor receives historic SEC approval

GROUNDFLOOR's Brian Dally - "We hope they make a lot of $10 investments, a few each month."

Real estate lending platform GROUNDFLOOR has received approval from the Securities and Exchange Commission (SEC) to sell securities to non-accredited and accredited investors under Regulation A+, making them the third company, along with Lending Club and Prosper, to receive it.

The reason so few platforms have received the SEC’s approval is because it is hard to get, GROUNDFLOOR Co-Founder and CEO Brian Dally said.

Mr. Dally is a featured speaker at Crowdnetic’s “Crowdfinance 2015 – The evolution of global marketplace lending”, which takes place on Sept. 28 in New York City.

“The SEC requires a platform to be formally qualified to offer securities under Regulation A,” Mr. Dally said.

Mr. Dally explained when platforms want to sell financial securities they have to either register with the SEC or find an exemption. He cited the recent surge of Regulation D filings, which total more than $1 trillion, as an example.

“That is how lots of private transactions are funded,” Mr. Dally added.

Mr. Dally said Regulation A (aka regulation A+) is “a high bar to meet,” because it allows a platform to sell to non-accredited investors.

Because GROUNDFLOOR specifically targets non-accredited investors, that bar is a hard-earned but natural fit.

“We are the only real estate crowdfunding site that I know of that is 100 percent open to non-accredited investors,” Mr. Dally said. “There are so few because the regulatory burden is so high.”

“And it should be high. It is the broadest market one can sell to.”

GROUNDFLOOR offers short-term commercial loans backed by residential property. The average loan term ranges between six months and one year. Interest rates begin at nine percent. Loans are available for construction, renovations and other reasons some lenders are reluctant to fund.

It helped that GROUNDFLOOR has someone intimately familiar with the JOBS Act on the team. Co-Founder Nick Bhargava lobbied for the JOBS Act while at Motaavi, a crowdfunding platform he founded while studying at Duke. He also worked separately for banks and the SEC during the creation of the Dodd-Frank Act.

“Nick’s role was critical,” Mr. Dally said. “He is both a visionary and incredibly practical.”

Mr. Dally further credited Mr. Bhargava for navigating a complex process without compromising GROUNDFLOOR’s values and strategic intent.

“He fit a lot of pieces into a large and connected multidisciplinary puzzle.”

Mr. Dally said it remains to be seen how many platforms follow GROUNDFLOOR’s lead, though he admits the process tends to filter out many who might try.

Another factor helping GROUNDFLOOR was their collective vision for the company, Mr. Dally added.

“We have a long-term road map, so the upfront expense was worth it.”

GROUNDFLOOR also credited the maintenance of a collaborative relationship with regulators for helping obtain approval.

GROUNDFLOOR  has also expanded into eight states, Mr. Dally said. After beginning in Georgia, they added California, Illinois, Texas, Massachusetts, Maryland, Virginia, and the District of Columbia. Those states contain seven of America’s ten largest metro areas and 15 of the top 20, Mr. Dally said.

“This is an important moment for alternative finance.”

“We wanted to address the broadest (population) base with the least amount of regulatory heavy lifting,” Mr. Dally explained. The eight states have similar laws which helped, he explained.

Some states were more open to GROUNDFLOOR than others, Mr. Dally said. Other states did not resist per se, but were simply less willing to experiment with and invest in the process, he said.

Mr. Dally said it remains to be seen if GROUNDFLOOR adds more states.

One aspect of GROUNDFLOOR that is unlikely to change is their focus on single-family home construction, Mr. Dally said. The $70 billion market for private lending means it is large enough to support GROUNDFLOOR’s concept.

Most people also intuitively understand single family properties, which meshes perfectly with the platform’s desire to appeal to the largest possible group, Mr. Dally said.

“We want to build something everyone can understand.”

Mr. Dally believes GROUNDFLOOR is set to embark on the next stage of its development.

“For us this is the end of 18 months, the end of the beginning. We are looking forward to the next phase and scaling up what we started.”

“This is an important moment for alternative finance.”

Groundfloor Company Demo

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