Most of us can name the person or people who have helped us get where we are — the friend, family member, mentor, or even stranger, who gave us the support we needed whether in the form of a kind word, an inspiring mantra, an invaluable introduction, or a financial boost. I’m struck more and more every day about the importance of a community — a cohort, even — and the fact that we are all indeed pulling each other up by our bootstraps.
Today marks a milestone for Able Lending (see site) — we’re opening up our third cohort of loans, the Austin 25. It’s a commitment to fund 25 more amazing small businesses here in our hometown of Austin on the heels of securing new lending capital.
As with any major step, you often pause to reflect upon where you’ve been, where you want to go, and what you’re really about.
Our company mission is to help main street businesses grow through low-interest loans.
Yes, we said loans.
We love local staples like Branch Basics, Hops & Grain, and Chi’Lantro — each with an indefatigable founder and thousands of raving customers. But these amazing companies — the ones that bring so much color and uniqueness to our cities and neighborhoods — have a problem: banks no longer lend to them.
So in their place, several “alternative online lenders” have emerged, many of them charging over 50% in annual interest rates. These lenders aren’t evil; they have to charge high rates because they lend small amounts of money for short periods of time and pay huge sums to acquire customers. These creditworthy small businesses need low-cost capital. So we invented a new loan.
We will not likely win a Nobel Peace Prize — but we still find inspiration from Mohammed Yunus, founder of the Grameen Bank, who did win one.
Yunus is a global hero who wanted to find a way to lend to ‘microenterpreneurs’ in rural Bangladesh, to whom $25 loans at 20% interest would likely prove a pathway to self sufficiency and breaking the poverty cycle. In the early days, Yunus had a problem: he believed in these entrepreneurs, but no one else did. Consider this passage from Yunus’ autobiography from an exchange he had with a banker when first raising capital to lend:
“But you don’t understand, we simply cannot lend to [them],” said the [bank] branch manager. “Why not?” I was trying to be polite. Our conversation had something surreal about it. The branch manager had a smile on his face as if to say he understood that I was pulling his leg. This whole interview was humorous, absurd really.
Yunus was eventually successful in securing the first line of credit — but still had to personally guarantee and sign for each loan. Closing that first tranche of capital was a huge milestone for Yunus. Of that event he wrote, “That was the beginning of it all.” With that backing he could roll out the new kind of loan — one in which business owners were made creditworthy by their community. By 2011, the bank has served 8.4 million businesses with over $11 billion with less than a 2% default rate, a rate lower than that of most commercial banks.
At Able we have just completed our second cohort of loans with over 50 customers — both borrowers and backers — and zero defaults.
To date we have been lending capital from our own balance sheet, putting our money where our mouth is. Based on the success of this second pilot, we have secured our first lending capital financing. During our fundraise, we heard many of the same things that Yunus heard: “we can’t lend to those people.” In fact, we heard this from well over one-hundred investors. But one funder took the time to get to know our borrowers and deeply analyze our process — and then they said yes. As Yunus said, the first funding “is the beginning of it all.”
With this funding we are formally launching our third cohort — the Austin 25 — who will receive low-interest loans and a set of special services as part of the Able Story Platform, which includes photography, web promotion, and PR opportunities, unique networking events, and free business consulting from the Able team.
Our companies tell us over and over that while they appreciate and needed a low-interest loan to grow their business, they came for the loan but stayed for the community. “I’ve finally found my people,” they say as they meet fellow founders, like-minded local investors, and active customers excited to help build a new generation of small businesses.
We fund businesses that have annual revenues of $50,000, strong growth prospects, passionate leadership, and supportive customers. We make one, two, or three year term loans starting at 8% interest. Once qualified, borrowers use our platform to recruit 3–5 “backers” — friends, family, and customers — to fund 25% of their loan. These backers become creditors with Able and receive monthly repayments. You can learn more about how it works here.
At Able we are doing a lot differently. As noted earlier, one of the reasons our competitors charge such high rates is that they pay literally thousands of dollars to acquire a single customer. For example, OnDeck, a much-discussed online lender, disclosed in its public filing an average interest rate around 54% APR and acquisition costs up to 7.5% of the total loan amount. For a $100,000 loan, OnDeck might pay $7,500 to a “loan broker” to acquire a single loan.
Like other lenders, we have to acquire customers. We have three choices: spam you with internet advertising costing thousands of dollars, pay off loan brokers, or ask discerning friends and customers to nominate their favorite businesses.
To us the choice is clear. We’d rather support the Able family — both our fans and small business owners — and let our community’s resources to stay in the community.
Our new kind of loan requires a new kind of acquisition. So today we launch the EnAbler Network. Here’s how it works: you nominate an Austin business that you love and want to see grow; if they are chosen for the Austin 25, we’ll give you $500 to spend at that business and we’ll give them $500 toward their first payment.
Why would we rely on you? Well, you vote with your feet and your dollars every day — and, let’s be honest, you have great taste. To refer a business and get a chance at $500 toward your favorite company in town, send the business name and your brief nomination directly to my cofounder Will Davis: firstname.lastname@example.org
Many people we’ve pitched Able to gave us a look similar to the one Yunus got, suggesting, “are you serious?” Slowly, that is changing. Dozens of businesses and investors in Austin have said yes. Now major institutional investors have said yes. And we hope that you, too, will say yes: as a borrower, backer, or enabler.
Whenever we run into difficult moments — like our 100th pitch to institutional investors — we just remember Yunus’ words:
I never intended to become a moneylender. I had no intention of lending money to anyone. All I really wanted was to solve an immediate problem. Out of sheer frustration, I had questioned the most basic banking premise… I did not know if I was right. I had no idea what I was getting myself into.
With each new borrower who gets a chance of greater opportunity and with each new backer who gets to participate in her community in a new way, we learn more about what we are getting into — and we like it, a lot.