Online lender ZestFinance secures $150-million credit line
As investors pour huge sums into online lending firms, ZestFinance in Hollywood is the latest to find a big backer, securing a $150-million credit line from New York’s Fortress Investment Group.
The deal, announced Monday, will enable Zest to expand its new lending arm, Basix, which launched in July and is aimed at borrowers with middling credit — those who might not qualify for a loan from popular online lenders such as Prosper or Social Finance Inc.
Through Basix, Zest offers personal loans of $4,000, to be paid back over three years at a 30% interest rate. Those loans are now available in 15 states, including California. The lender eventually plans to offer loans of $3,000 to $5,000, with rates of 26% to 36% a year.
Those rates are high compared with rates for borrowers with good credit, but significantly lower than the triple-digit rates for similarly sized loans charged by some lenders, according to the Center for Responsible Lending advocacy group.
Zest will use the credit line from Fortress to fund more loans, said Douglas Merrill, Zest’s founder and chief executive. Until now, the company has been making loans using its own cash.
“The Fortress money allows us to accelerate it a little more quickly,” Merrill said. “We’re going to be able to put the foot harder on the gas.”
Fortress officials did not return requests for comment, but the firm has backed other lending start-ups. In 2012, Fortress and Goldman Sachs provided an $80-million credit line to online business lender On Deck Capital.
ZestFinance’s announcement comes the week after two other online lenders announced major equity funding rounds.
Avant, which makes loans similar to those offered by Basix, raised $325 million from investors including JPMorgan Chase & Co. and private equity firm General Atlantic. And San Francisco’s Social Finance Inc., or SoFi, best known for offering student debt-consolidation loans, raised $1 billion from investors led by Japan’s SoftBank Group.
Zest, Avant and SoFi are part of an increasingly crowded field of new lenders offering loans directly to consumers online. Often using their own credit underwriting systems and collecting loan payments electronically, they promise lower interest rates or higher approval rates for customers with bad credit.
That represents a threat to the banking industry. A recent report by Goldman Sachs estimated that online lenders could eventually snag as much of one-third of the nearly $700 billion in personal loans held by banks, putting at risk about $4.6 billion in annual bank profits.
james.koren@latimes.com
twitter: @jrkoren
