Analysis Featured

Insights into Offering Lines-of-Credit

BlueVine

The majority of business owners prefer a line of credit over an installment loan. Your business is growing and the money is required to rotate between supplies, stock, and debtors. This requires a revolving line versus a loan, which you need to repay month on month. Banks, and even alternate lenders, have not been able to service this pain point. The regulatory burden is too high for banks, and fintech lenders find it too cumbersome or complex to underwrite a line of credit. One company that seems to have figured out the product market fit and the backend for processing is BlueVine. It is the largest provider of revolving lines of credit, and also offers invoice factoring.

Products

The company first launched invoice factoring and received an overwhelming response. A year ago, they launched their second product: line of credit. To date, both products have originated over $500 million. Almost 70% of the line of credit business is generated by third party partners like Fundera, Lendio, and BizFi. It does a line of credit up to $100,000, and factoring up to $2.5 million. The factoring business is sourced more in-house as it’s a larger facility and requires additional analytics.

Every minute counts

Factoring is an upmarket product. Therefore, processing time does not play a pivotal role. The line of credit is targeted towards mass market and enabling seamless onboarding is a key factor for success. Currently, BlueVine takes 20 minutes to provide an approval. Bringing this time down is a priority as client conversion increases proportionately. The consumer is not going to wait for an hour to get approval for working capital. If you are slow, he would have found a competitor online who does it in a lesser amount of time.

Underwriting Process

In comparison with term loan and merchant cash advance (MCA) where underwriting is done once at the beginning, the issue with revolving working capital is that it requires multiple underwritings. No one does it better than BlueVine as it underwrites all its accounts every three hours. It leverages different data sets, crawls the web for research and processing, and executes behavioral analytics to ensure an updated status. This process benefits in the long term, especially for the returning customers. This is because if that particular client’s account was underwritten in the last three hours and it is still in good standing, the client only needs to press the “yes” button and approval will be done within seconds.

Credit card companies usually only review credit regularly once the card is issued, whereas BlueVine does a much more comprehensive review that includes a credit check, cash flow analysis, fraud, and much more. The fact that BlueVine started with factoring, which involves multiple checks on each transaction, has helped the company to continue the trend for its line of credit product.

Customer Centric Vs Product Centric

Traditional banks and financial institutions were focused more on selling products to consumers versus understanding what the customer actually wants and then providing a solution. The founders are impressed with SoFi and its dedication towards its customers and ensuring that they get the best service through a bouquet of products. In the same spirit, BlueVine wants to add products that will help in deepening its relationship with the client rather than focus on just generating more loans. Given a choice, a customer will choose a company which offers a variety of services rather than a company which only offers to lend.

Being able to offer a comprehensive solution is necessary for succeeding in the market in the long run. This also mandates that fintech lenders targeting the consumer category need to figure out how to provide credit cards to their customers. BlueVine and other SMB lenders have proven that the tech is there to handle a revolving credit line. Though there is point-of-sale financing and credit card consolidation loans, there is no pure revolving credit product for consumer space. Whichever company is able to crack that puzzle is looking at a trillion dollar untapped market.

Industry Outlook

Right now, the industry is at a very interesting crossroad. Listed fintech lenders have had a very tough year whereas private investors understand the space on a more granular level. This has led to public companies being hammered down whereas private companies are raising hundreds of millions of dollars. As the industry matures, the sentiment of public investors will also turn positive.

Demand

The company has been able to strike the right chords with it customers and has enjoyed a strong demand for its offerings. With only OnDeck, Kabbage, and Headway providing a line of credit, the company has a massive runway to grow. Next year, it is expected to cross the coveted $1 billion line in origination, which is a remarkable feat considering it took them only four years as compared to fintech behemoth OnDeck, which took four years to reach the $100 million mark.

USP: Unique Selling Proposition

In the factoring line of business, the company enjoys a leadership position as nobody else does factoring on scale. Though there is excess demand on the line of credit side, it still faces competition from fintechs and banks peddling short term loans. Banks don’t like offering line of credit as it is costly and time-consuming, and underwriting needs to be executed again and again. The product is not scalable or feasible without having your tech in place for underwriting and processing. One also needs to be good at managing risk, and raising capital can be a herculean task as modeling working capital cashflows for investors can be tricky.

Funding To Date

Since its inception, BlueVine has managed to raise almost $113 million in various rounds of fundraising. In its latest round of funding, Bluevine secured a $75 million warehouse line of credit from Fortress Investment Group. The company raised a Series D of $49 million in December 2016. The round was led by Lightspeed Venture Partners.

Team

Eyal Lifshitz is the co-founder and CEO. Prior to this, he was a principal at Greylock and an associate at McKinsey. Nir Klar, co-founder and CTO, has over 20 years of experience in technology innovation. And prior to this, he was CTO for Planet SOHO and Media Layers.

Author:

Written by Heena Dhir.

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