San Diego-based LoanHero recently disclosed that it has raised $1.7 million in seed funding to expand its software-based service for merchants. The technology offers consumers a variety of financing options when they are purchasing big-ticket items like furniture and home improvements.
The year-old fintech company said it also has secured a $20 million debt facility that will be used to fund loans originated on its system.
In a statement, LoanHero says it “often offers prime consumers interest rates lower than credit cards while also charging merchants lower transaction fees than the credit card networks.”
The startup said its seed round was led by an undisclosed New York investment partnership, and was joined by local angel investors. LoanHero’s board includes Zalman Vitenson, CEO of San Diego-based Integrate Financial; San Diego venture investor Neil Senturia; and Stephen Connolly, a former general manager for the financial services company CoreLogic (NYSE: [[ticker:CLGX]]).
Vitenson also serves as LoanHero’s executive chairman, and Connolly stepped in as CEO in February.
Entrepreneurs Derek Barclay and Kristin Slink founded LoanHero, and they continue to serve as president and COO, respectively. I submitted some questions to them by e-mail, and Slink responded. I have condensed her responses and edited for clarity.
Xconomy: What were you doing before you founded LoanHero, and what made you think LoanHero was a good idea?
Kristin Slink: Derek and I have been involved in the retail finance industry for over four years. We previously co-founded a company called First Look Approval, which focused on consulting with merchants on how to implement various financing programs in their business to cover the full spectrum of customers with good to bad credit.
This resulted in the merchant creating what we call an “internal waterfall” of financing programs. This process is extremely inefficient and results in a painful experience for both merchants and their customers, especially when a customer is declined for multiple financing options. After being exposed to over a dozen finance programs and working with a variety of merchants, we realized that there had to be a better solution for merchants to use at the point of sale. The idea of LoanHero was born.
X: How have you funded the company before now?
KS: We initially raised $400k from local angel investors, which enabled us to create our minimally viable product and add a few key members to our team. The remaining $1.3 million was raised over the last few months from both local and national angel investors.
X: How do you plan to use the proceeds of this funding round?
KS: The $1.7 million will be used to operate our company, grow our team, and prepare for scale. The $20 million debt facility will be used to fund loans originated on our platform and placed on our balance sheet. We then have the opportunity to sell these loans to both credit union partners and marketplace lenders.
X: How many employees does the company have now?
KS: We currently have 7 full-time employees.
X: What is your strategy? Are you targeting major retailers or small, local retailers? What exactly is LoanHero offering?
KS: We target both small and large retailers, primarily in consumer goods, home improvement and medical services. The product we offer is a one-stop loan origination platform that merchants use to finance their customers. Our technology is completely
