wakila | E+ | Getty Images
Sometimes it takes the worst of times to bring out the best in people. That’s what serial entrepreneur Rodney Williams is counting on. The co-founder of the peer-to-peer lending platform SoLo Funds is on a mission to help the millions of Americans that live paycheck to paycheck and can’t survive the money crunch caused by the coronavirus pandemic.
The co-founder of LISNR, a company that makes audio wireless technology that disrupted the data communications market, now wants to reinvent the peer-to-peer lending market in the U.S. He understands the plight of people who fall on financial hard times. Born to an immigrant family of limited means, he grew up in Baltimore and attained success at a young age after getting three college degrees by age 24.
“We now are facing the greatest financial emergency the nation has ever faced in recent history,” says SoLo Funds co-founder and CEO Travis Holoway. “Thirty-four percent of Americans have zero dollars in savings. A few weeks ago people began to realize they may have only one or two paychecks left. Many have been furloughed and cannot go back to work.”
The economic decline in the U.S. keeps picking up momentum with no end in sight. About 10 million Americans filed for unemployment in the past three weeks, and their ranks keep growing. The government’s federal stimulus program, which provides one-time payments of $1,200 to individuals and $2,400 to couples, provided they meet specific qualifications, is welcome relief but not enough. The payments are targeted at individuals who earn up to $75,000 and couples with income up to $150,000. Eligible dependents could get $500. Meanwhile, $1,200 won’t cover monthly rents in many parts of the country.
Recognizing the urgent need facing families across America, Williams and his partner are relaunching their two-year-old online lending platform with a new model for peer-to-peer lending. It will provide microloans of between $50 and $1,000, with terms set by the borrower. There is no interest charged for the loans on the platform. Borrowers set their own terms, select the repayment date, how much they need, the reason they need it and what they would like to tip the individual lender. Tips are capped at 10%.
“We didn’t build the platform knowing the coronavirus pandemic would happen, but now that this has happened, this is an option for an alternative form of financing,” Williams notes. “SoLo Funds has the runaway to lend over $10 million a month during this critical time.”
Paying it forward
Up until now, the typical loan on the platform has been $200 with an 8% tip for lenders. Borrowers have a maximum of 30 days to repay it. Lenders have been middle-income Americans earning $75,000 to $150,000 a year.
“The lenders are not the wealthy, but average everyday Americans who want to pay it forward and help make a social impact,” says Holoway. He notes most are 30- to 45-year-olds.
Not surprisingly, many borrowers are single mothers who need bridge financing to pay for life essentials like food, medicine and their utility bills, he adds.
Unemployed individuals are also a large contingent on the site, and their ranks are steadily swelling in this stalled economy.
The lenders are not the wealthy, but average everyday Americans who want to pay it forward and help make a social impact.
co-founder and CEO of SoLo Funds
Maurice Camara, a web developer that installs software for Wordstream, a software-as-a-service in Boston, can attest to that. Last summer, when he was temporarily between jobs, he couldn’t get a traditional bank loan to pay for rent, utilities and food. Nor was he able to raise money on LendingClub, a peer-to-peer lending site. All he needed was $200 to make ends meet.
“My credit score was just too low at the time, and I went through hoops to try to qualify with no luck,” he recalls. “Just by chance I stumbled on SoLo Funds on the web. After posting a request on the platform, I got the money in a couple of hours,” he recalls.
Since then, he has borrowed $1,500 at times when he needed cash. Now employed, he also has become a lender on SoLo Funds. “It’s a way for me to give back and save others like they saved me,” Camara says.
A whole new model for peer-to-peer lending
SoLo Funds’ model turns peer-to-peer lending on its head, since most platforms charge interest rates that can be 35% or more and set stringent repayment terms. In contrast, SoLo Funds has no interest rate, and borrowers put in repayment terms they feel are doable.
It has added a protection feature for lenders in case of loan defaults during these difficult financial times. “We will be the guarantor of selected loans that meet our security requirements, so the lender doesn’t assume all the risk. That means if a borrower defaults, we give the lender back his or her money and then negotiate a repayment plan with the borrower.”
According to Williams, “the FICO credit scoring system in the U.S. is outdated and broken and many individuals cannot get financing. SoLo Funds uses alternative data to deem a person’s creditworthiness, such as their cash flow, social media engagement and gig work.”
Solo Funds co-founders Travis Holoway and Rodney Williams
As he explains, SoLo historically always has scored the risk associated with each borrower request. This score is called the SoLo score, which assesses each transaction’s risk vs. a historical assessment. SoLo leverages cutting-edge technology to assess an individual’s creditworthiness. Using a plethora of data points, cash-flow analysis and machine-learning processes, we have been able to accurately assess risk potential at a greater rate than standard credit scores.
So far, SoLo Funds has raised $4.8 million in venture capital from Impact America, Mac Venture Capital and two famous angel investors — Richelieu Dennis, co-founder of Sundial Brands, and TransferWise co-founder Taavet Hinrikus.
“The coronavirus crisis has quadrupled the size of the market for these types of loans,” according to Lesa Mitchell, managing director of TechStars in Kansas City, who invested $100,000 in SoLo Funds in 2018 to help grow the business.
As she explains, social impact ideas are getting more attention from venture capitalists and other types of investors, including community foundations. “This is an alternative approach to microloan payday lending that is needed at this time. I have seen how traditional payday lenders have devastated lives and feel this is a model that no one has ever tried.”
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.