While the Denver-based co-founder of a commercial crowdlender does not have a traditional business background, she is not letting that stop her from making her mark in the small business lending sector.
Ms. Morgan said P2Binvestor differentiates itself by crowdfunding commercial loans of up to $5 million.
Most small business lenders in the alternative finance space provide small amounts used to open a location, hire some staff, meet payroll, or finance equipment. Small business loans by many of those providers average $30,000. P2Binvestor provides asset-backed lines of credit, which Ms. Morgan said are easy to manage on the technological end.
Those loans are not kept on their balance sheet and are instead syndicated to private, accredited and institutional investors.
Ms. Morgan said a wide range of firms find themselves in need of a $1 million or larger revolving line of credit. Many such companies have to deploy significant amounts of staff and other resources. P2Binvestor’s technology frees them from those tasks.
“They do not want the hassle of dealing with a bank,” she explained. “With our online interface they can get $3 million in five days.”
Those funds can be provided at prime plus eight percent.
Ms. Morgan said there is nothing magical about what P2Binvestor is doing. They are simply automating processes which used to be completed manually.
“The question becomes how do we accomplish the heavy lifting with technology,” Ms. Morgan explained.
“It is all based on collateral underlying integrations with accounting software, and completing tasks like bank data verification so the customer doesn’t have to.”
That allows a potential borrower to apply in as little as three clicks, she added.
While some people may have doubted P2Binvestor’s business model early on, as they have passed the $100 million mark the number of skeptics have dwindled, Ms. Morgan admitted.
Returns ranging from seven to 15 percent off a well-managed portfolio do not hurt either, she added.
Ms. Morgan shared a few factors P2Binvestor considers when considering a loan. A business has to be in operation for at least on year and must generate at least $1 million in annual revenue (though occasional exceptions have been made). The loans are also secured with collateral like receivables, inventory and contracts. They also want to hold the most senior debt.
Patterns are also important, she explained.
“We also look to see if revenues are trending in the right direction and if the company is producing positive cash flow.”
P2Binvestor also stays away from certain verticals like transportation.
“And even though we are based in Colorado, we do not finance marijuana operations,” she laughed.
Ms. Morgan came across peer-to-peer lending while it was in its early stages. Originally from Canada, she was living in the United Kingdom and often wondered why people could not simply lend to other people.
“I am not from the world of finance,” she explained. “I have a marketing and technology background.”
A big influence for Ms. Morgan is her father and co-founder Bruce.
“If he taught us anything it was being up front about business models, pricing, and how things work.”
“I find it frustrating that financial term sheets are riddled with clauses. People have no idea what they are paying.”
Ms. Morgan also learned a lot from other platforms, a comment many have made about an industry whose smart players clearly understand the importance of a strong and healthy climate in the industry gaining wide acceptance.
“Fin-tech is really exciting,” Ms. Morgan said. “Data (interpretation) is big. Strong data sets lead to fascinating underwriting and better decisions.”
That collaborative aspect Ms. Morgan touched on earlier extends to the sharing of data, which helps the industry grow stronger, faster.
“Industry data used to be held by big companies and no one had access to it. We are all serving the same market, which is small business.”
Editor’s note: Funds are provided at prime plus eight percent. The original text said prime plus three percent.