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How a Loans Marketplace Can Change Online Lending

Magilla Loans marketplace

Magilla Loans is an online lending exchange founded in 2015 that connects borrowers to banks without requesting any personal information. The idea of building the “search engine” for loans was conceptualized by Chris Meyer, a graduate in BA Politics and history from Brandeis University, and Dean J. Sioukas, a graduate from the University of California in BA economics. They had first-hand experience of the struggle in applying for loans and getting the best deal possible. This motivated them to launch Magilla Loans and solve an important pain point for borrowers.

The Story Behind Magilla Loans

Confounded by the way traditional banks provide loans, Meyer and Sioukas wanted to create a search engine for providing multiple loan options to borrowers at one place. Meyer was tired of the providing private financial information to multiple banks and then working with them for two to three months to go through the entire process of underwriting and negotiation. In order to take the friction out of the process the founders envisioned creating a Kayak-like platform for borrowers and lenders. The marketplace is focused on the customer experience and the borrower gets to choose with which lender he wants to work.

Key Features of Magilla Loans

The key to Magilla Loans is that the borrower remains anonymous and does not have to provide any personal information such as name, phone number, or social security number while using the website. The only information the website asks the borrower for is their e-mail. The borrowers can compare the lender options without being spammed by banks or having their personal information sold to third parties, thereby providing complete anonymity while surfing the site.

Business Model

Magilla Loans has concentrated on premium borrowers with credit scores of around 700. This focus has given good returns with an average loan size of $1.4 million for business loans and $500,000 for home loans. A high-ticket size instantly differentiates the platform from the hundreds of players fighting in the sub-$100,000 segment. The Magilla Loans platform has FDIC-insured lenders, commercial banks, and hard money lenders with nearly 130 lenders on its search engine. There are no concerns about any violation with regards to Real Estate Settlement Procedures Act or the Dodd-Frank Act, as Magilla Loans is simply a marketplace.

The fee structure of Magilla Loans is based on CMSAs (Combined Metropolitan Statistical Area). The company has divided the United States into four CMSAs. It’s a subscription model where the lender pays a monthly fee for access depending on the CMSA targeted. There are no add-on broker fees.

The company does not charge any kind of fee from the borrowers. Its larger plan is to become a one-stop provider for them. The founders understand that once the loan is approved, the borrower will need services of appraisal, environment inspection, insurance etc. If it can collate all of these ancillaries in one place, there is a good probability that the borrower will choose loans from Magilla. This allows the platform to earn supplementary revenue and enhances the perceived utility of the website in the eyes of the borrower.

Magilla’s Working Process

The website is unique in a way that it empowers the borrower to choose the lender and the terms and not the other way around where banks get to choose the borrower.

Magilla Loans helps borrowers by finding and comparing the best loan terms without having the borrower apply to scores of banks individually. Magilla Loans sends a comparison chart (called a MagChart) incorporating proposals of nearly five to 10 lenders along with the rate, terms, closing costs, and other metrics. After performing their due diligence, the borrower chooses his/her lender. The borrower’s personal information is disclosed only to the lender chosen by the borrower specifically.

Why Traditional Lenders are Partnering with Magilla

Traditional lenders have lost a lot of space to fintech alternatives. Bloated cost structures have made it difficult for banks to be nimble in their marketing and outreach programs. The top 15 banks spend at least a billion dollars a year on marketing and business development. The Magilla model allows for banks to concentrate on underwriting rather than competing for leads in the marketplace. The founders believe they can reduce the marketing and business development budget of a bank by 50% and 25%, respectively.

The platform also allows for fine tuning the lenders’ portfolio. If a lender is heavily bullish on industrials and wants to focus on that market in the short term, Magilla Loans will only offer them applicants looking for industrial loans. This micro-targeting saves a lot of time for all parties involved.

Performance

Magilla Loans has experienced exponential growth. Currently, it has 130 lenders on board with 200 loan officers. Rather than spending millions of dollars in marketing, the company focuses on creating relationships with professional associations, dental and medical practitioners, and real estate brokers. The model’s success can be seen from the fact that it has had loan requests of over $3 billion on its platform in less than two years of operations.
It is currently limited to California and is seeking Series-A to roll out the model nationwide. The simplicity of the model allows the founders to harbor ambitions for international expansion, as well.

Conclusion

The US alternative lending market has grown aggressively over the last decade. VC funding has allowed many me-too startups to proliferate. Magilla Loans is a breath of fresh air with its focus on high-ticket size and a search engine model that does not disclose the borrowers’ personal information to lenders. With $3 billion in loan requests, the company is poised to dominate its niche.

Author:

Written by Heena Dhir.

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Allen Taylor

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