P2Bi applies Crowdfunding Model to Asset Based Lending for Small Business

P2Binvestor (P2Bi) describes themselves as a crowdfunding platform for commercial lending.  It offers credit lines to businesses.  Krista Morgan, cofounder of P2Bi, was working for an agency in London in 2005, doing digital marketing strategy for the likes of Coca-Cola, Barclays, and Johnson and Johnson. So how did she develop P2Bi? By her own admit, she fell into this by accident. She came across peer-to-peer lending while in London and then started looking at a direct lending model. Her dad was thinking about how to raise money for a factoring business when Krista brought up P2P and crowdfunding and convinced him to help start P2Bi. Today, they are in the middle of a third round of angel funding.

According to Krista, “We originally set out with the intention we would do things the way Lending Club did but for receivables. Then we realized that applying that exact model was going to be a) unprofitable and b) not great for investors due to monitoring of receivables, where account fraud is a big consideration."

P2Bi provides full-recourse loans based on the borrowers commercial receivables (and sometime additional assets such as equipment, inventory, or contracts). P2Bi’s asset-backed lending products are designed to provide growth-stage businesses with a middle path between traditional lenders and expensive alternative financing companies. A crowd of accredited investors participates in funding each credit line, and investors earn a fair return on the platform in exchange for supporting P2Bi’s small business clients.

Today, they mostly source deals via banks referrals and only do deals in the US. The average size company is $2m to $10M and deals typically involve revolving lines of $0.5M to $3M. The company now provides over $10.5 million in lines of credit to 19 clients and purchased more than $24 million in invoices since May 2014, when they signed their first client. To date, P2Bi has financed the growth of companies in manufacturing, technology, personnel services, and natural foods with annual revenues ranging between $2 and $10 million.

The process to request a line is simple and is outlined on their web site.

  • A company submits completes an application with eligible accounts receivable and aging reports to P2Binvestor.
  •  P2Binvestor determines a rate and issues a term sheet based on the application information.
  • P2Binvestor funds and advances a line of credit to the company of up to 90% of the receivables balance. The line is opened to investor participation on their investor platform.
  • The company’s invoice payments are issued to a bank account managed by P2Binvestor. These payments are used to draw down the line of credit, and the balance is remitted to the company.

Investors own a proportional share of the cash flows from the invoices and typical APRs are 7% to 15%. One concern here is the issue of co-mingling investors to make loans. If there is a default, you may have multiple investors with an interest in the facility. How does P2Bi handle this? As a trustee, P2Bi said the crowd has a first interest in anything they buy and they are in the process of putting in place a bankruptcy remote structure so that if they can no longer collect receivables someone else can get into their lockbox and know how much principal is in ever invoice paid and who gets how much principal back.

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