In October, Credibly closed its first securitization—a giant step forward for our company that will allow us to offer capital to a wider range of small business owners than ever before. Since the term might be unfamiliar to many of our customers, we’ve decided to shed some light on our securitization and what will it mean for SMB borrowers in the future.
What is a securitization, anyway?
In a securitization, a company pools together its revenue-generating financial assets, divides them into tiers by the projected value of the assets, and offers shares of those tiers to smaller investors. (In Credibly’s case, the financial assets are the business loan debts we carry on our balance sheet, and we divided them into three tiers based on a number of factors including the loans’ level of risk as well as the time and principal amount remaining on the loans.)
As Investopedia explains, “Securitization provides creditors with a mechanism to lower their associated risk through the division of ownership of the debt obligations. The investors effectively take the position of lender by buying into the security. This allows a creditor to remove the associated assets from their balance sheets.” So, not only does a securitization generate cash-flow for the loan originator (i.e., us), it also allows the originator to sell off some of the riskier assets in its portfolio in a way that still provides a reliable return for investors. Both of those benefits put Credibly on even stronger financial footing as a provider of capital.
Why was it the right time for Credibly to securitize some of its loan assets?
In short, because we were ready for it. “For many years, Credibly had a large warehouse line from [SunTrust Bank], during which time both our company’s performance and the performance of its assets exceeded expectations,” Credibly founder and co-CEO Ryan Rosett said in a recent interview with Benzinga. “So, from an asset performance perspective, we knew we were ready. As did our bank, which was the [underwriter] of our securitization.”
“The number of companies in our space who have had successful securitizations can be counted on one hand,” Rosett continued. “We wanted—and needed—to be one of those select companies so that we could lower our cost of capital to be able to compete even more aggressively. Additionally, the securitization has the ability to be increased to support our anticipated growth.”
That growth includes the rollout of two new lending products that will allow us to serve an entirely new segment of business owners.
How does Credibly’s securitization affect small business borrowers?
Fueled by the new revenue stream and the ability to have greater control over the health of our balance sheet, Credibly’s securitization will be used to roll out a new Market Expansion Product, which will allow us to fund merchants with FICO scores as low as 500 and businesses that have been operating for fewer than six months. “We believe the MXP will open up the funnel by allowing us to serve business owners that we previously couldn’t,” Rosett told deBanked last month. In addition, Credibly plans to launch a line of credit product in 2019. “Offering a line of credit has been a goal of ours for years,” Rosett said. “We’re excited to offer business owners a flexible credit product that will provide our customers with quick working capital exactly when they need it.” Credibly’s securitization is a financial milestone that will further secure our position as a market leader in the alternative lending space, and advances our vision of providing the most flexible funding options to the widest range of borrowers at the most affordable price. And if you’ve been turned down for business loans in the past due to a low credit score or short time in business, stay tuned…