In January, I had the chance to run a Q&A-style interview with the co-founders of the successful Credibility Capital, an online technology platform that helps small businesses acquire moderate levels of financing (also known as small business loans).
The two founders, Brett Baris and Mark Rambler, offered interesting insight on the small businesses lending space as well as Credibility Capital itself. Read on to learn a bit more about their operation, goals, and expectations as industry leaders in the small business lending market.
The Spark Behind Credibility Capital
Before I asked any questions, Brett and Mark, who are friends from high school in New Jersey, offered to share their backgrounds and what led to them discussing the beginnings of Credibility Capital.
Brett worked in the investment space for 17 years, specifically post-venture growth capital for financial tech companies. Interestingly, Mark was originally a lawyer by background and he worked with the Fortress Investment Group as a part of the Fortress Credit team. Both careers exposed them to alternative lending as it started to develop.
After some time, the pair linked back up, and the idea for Credibility Capital took off.
Brett: We started talking about an opportunity to make lower-APR loans to high quality businesses. We identified this market as a niche of business that was being overlooked by banks. The key was really how do you access these businesses, and the methods being deployed at the time were not very suitable for this product – you have to have a low-cost acquisition channel.
Partnering with Dun & Bradstreet in 2014 helped launch our business; D&B provided access to many small businesses looking for capital. We worked on a success-based revenue share, so by definition the acquisition cost is low. With that, we were able to pass the savings on to high-quality businesses worthy of the product.
I decided to follow up and ask a quick question about their startup phase; more specifically, I wanted to hear more about their partnership with D&B.
Q: Back in 2014, was finding this partnership with D&B one of your biggest challenges?
Brett: For sure, that was an integral part of our business, and it was a big event for us to get a contract with D&B. Dun & Bradstreet is a data company, and they were looking to leverage their data and provide added value to their customers. They considered partnerships with other companies in our space but ultimately chose Credibility Capital because of our low-APR product that didn’t expose D&B to headline risk. I think that was a big deal for them.
Our ability to provide D&B with full transparency and outcome data on all businesses sent over to us via API and bend over backwards to develop a true partnership channel was important. And of course, we provided them with a blue chip product offering that is genuinely beneficial to the small business borrower. I think those were a few main reasons we were able to win that contract.
More About Credibility Capital
With the background out of the way, we moved on to talking about Credibility Capital as well as small business lending in general. Here's what we covered:
Q: So how does Credibility Capital set itself from traditional and fintech competitors?
Brett: The main ways that we separate ourselves from the pack is how we find the businesses and how we fund the businesses.
On the “finding” side, everything we’ve done to date has been a success-based partnership model. While some other companies in our space spend heavily on marketing – direct mail, paid search, and other kinds of lead gen – we can’t pay exorbitant amounts for leads because we simply aren’t charging a lot in terms of APR. We have been able to use that initial contract with D&B as a base for other partnerships.
Then on the “funding” side, the cost of capital is very important. Our lower-APR loans just aren’t compatible with higher-cost pools of capital. Having a bank fund these loans just makes sense. We see ourselves as a service company for banks – providing A-paper whole loans to banks that have capital to deploy for these types of loans.
Q: Do you see certain types of businesses from a certain industry applying for these loans more often than others? What sort of business do you lend to?
Mark: No, not really. While our underwriting program developed by John Birge, our Chief Credit Officer, of course does take into account the applicant’s industry, aside from a few headline-risk industries, we’re lending to all types of businesses.
For our businesses, the weighted average time in business is over ten years, and the average revenue is over $3 million. These are businesses that could be getting a bank loan, but the bank just isn’t really that interested in sourcing and underwriting a $100,000 loan that isn’t secured by real estate.
All of our loans require a personal guarantee and we file a UCC, which is not secured by specific collateral. This C&I loan is difficult for some banks to source and efficiently underwrite. That being said, many banks with capital to deploy would be interested in having that loan on their books if it is sourced and underwritten and tied in a bow for them – that’s what we’re offering.
Q: So these loans are getting secured by personal guarantee, and the average business seems to be on its feet. Are you looking to work with businesses mainly looking to expand?
Mark: Yes, we’re most interested in making loans for business expansion. It could mean hiring a new employee, embarking on a new marketing campaign, or maybe you have three locations and you’re opening a fourth.
The kind of rates we offer aren’t going to work for riskier businesses. Lending is an old business and there are some basic rules – the lending capital we have access to just won’t work with riskier credits. For example, if a business needs to make payroll by Friday, we’re not going to make that loan. There are some lenders out there that would do that, but in order to maintain our transparent, low-APR product, we can’t make loans to those businesses.
Outlook on Small Business Lending
Switching gears to business financing overall, I wanted to see what Mark and Brett thought about the future of small business lending.
Q: A popular trend shows that fintech lenders are growing in market share. What’s your prediction for fintech presence in the market down the road?
Mark: I think you’re going to see a convergence of traditional and non-traditional sources of capital. It’s going to be less important if it’s fintech lending or traditional bank lending. I don’t think it’s going to remain two different worlds -- it’s all just lending. Every business these days needs to be technology-enabled, and banks are no different. We’re looking to partner with more banks and banks are looking to partner with different kinds of fintech companies on the consumer and commercial side.
Q: How do you expect the competition to change over the next 5 years?
Mark: You’re already starting to see it. The companies without competitive advantages are going away, while those that will survive have advantages that set them apart. Lending is in many ways a commodity, so a lending company can’t have a lot of overhead – especially when you’re lending in the lower-APR space, efficiency is the name of the game.
Q: What would you say is the biggest risk to a small business lender over the next 5 years?
Mark: Historically, it’s been performance. You have folks that may grow very quickly and may get ahead of themselves. A lot of that is driven by the equity capital markets. I think growing slowly and surely while continuing to underwrite solid credits is the key to success.
If you don’t stick to the basics, your lending capital will dry up. We could be bigger for sure, but the risks of expanding too quickly are too high -- we’re here for the long haul.
Q: What’s your take on the current interest rate environment and what are your expectations for 2018?
Brett: Rates have ticked up and they’ll continue to go up. We have increased our rates, and we’ll continue to do so as rates go up. It’s important to note, though that our loans are fully amortizing monthly-pay 1, 2 or 3-year loans. So from a bank’s perspective, this is short-term lending – the lender doesn’t have to worry about capital being tied up for many years in a rising rate environment.
Expectations for 2018 and Beyond
To cap off the interview, I wanted to hear about their expectations for Credibility Capital in 2018, where they fit into the overall small business lending equation, and what their end goals were.
Q: Do you mind sharing Credibility Capital’s growth expectations in 2018?
Brett: Sure, we’ve been growing at a healthy rate since we started. We grew over 100% in 2016 in terms of loan originations, we continued that last year, a little higher actually – close to 130%. And we’re just looking to keep growing at that trajectory.
Q: What’s the end game?
Brett: We’re doing our best to fill this need in the market for high-quality businesses. Nobody really owns this market, and we want to own it. There are a lot of peers out there that we respect, but nobody really has a significant market share in this prime segment. And we feel like we’re only starting to scratch the surface.
About Credibility Capital
Founded in 2013 by co-founders Mark Rambler and Brett Baris, Credibility Capital offers an online technology platform to small, quality businesses interested in acquiring capital.
The New York City-based company underwrites and matches capital-seeking businesses with investing partners. Various partners, including Dun & Bradstreet, source the borrowers directly. Investors such as banks and family offices fund the capital.
In short, Credibility Capital’s platform connects credible, high-quality businesses with investors who fund small business loans. These loans can range in size from as low as $10,000 up to $350,000; interest rates can be as low as 7.99 percent.
About Mark Rambler & Brett Baris
Mark and Brett actually went to high school together; however, both took different career paths afterwards.
Brett is the Chief Executive Officer at Credibility Capital. His background in the investment space - working with post-venture growth capital investments in financial technology companies - introduced him to the alternative commercial lending space.
Mark is the Chief Operating Officer and President of Credibility Capital. A lawyer by background, Mark worked with Fortress Investment Group as a part of the credit group. His work also introduced him to the alternative commercial lending space.