Disrupting Credit Cards: A Q&A with LoanHero’s Kristin Slink

San Diego-based LoanHero recently disclosed that it has raised $1.7 million in seed funding to expand its software-based service for merchants. The technology offers consumers a variety of financing options when they are purchasing big-ticket items like furniture and home improvements.

The year-old fintech company said it also has secured a $20 million debt facility that will be used to fund loans originated on its system.

In a statement, LoanHero says it “often offers prime consumers interest rates lower than credit cards while also charging merchants lower transaction fees than the credit card networks.”

The startup said its seed round was led by an undisclosed New York investment partnership, and was joined by local angel investors. LoanHero’s board includes Zalman Vitenson, CEO of San Diego-based Integrate Financial; San Diego venture investor Neil Senturia; and Stephen Connolly, a former general manager for the financial services company CoreLogic (NYSE: CLGX).

Vitenson also serves as LoanHero’s executive chairman, and Connolly stepped in as CEO in February.

Derek Barclay and Kristin Slink

Derek Barclay and Kristin Slink

Entrepreneurs Derek Barclay and Kristin Slink founded LoanHero, and they continue to serve as president and COO, respectively. I submitted some questions to them by e-mail, and Slink responded. I have condensed her responses and edited for clarity.

Xconomy: What were you doing before you founded LoanHero, and what made you think LoanHero was a good idea?

Kristin Slink: Derek and I have been involved in the retail finance industry for over four years. We previously co-founded a company called First Look Approval, which focused on consulting with merchants on how to implement various financing programs in their business to cover the full spectrum of customers with good to bad credit.

This resulted in the merchant creating what we call an “internal waterfall” of financing programs. This process is extremely inefficient and results in a painful experience for both merchants and their customers, especially when a customer is declined for multiple financing options. After being exposed to over a dozen finance programs and working with a variety of merchants, we realized that there had to be a better solution for merchants to use at the point of sale. The idea of LoanHero was born.

X: How have you funded the company before now?

KS: We initially raised $400k from local angel investors, which enabled us to create our minimally viable product and add a few key members to our team. The remaining $1.3 million was raised over the last few months from both local and national angel investors.

X: How do you plan to use the proceeds of this funding round?

KS: The $1.7 million will be used to operate our company, grow our team, and prepare for scale. The $20 million debt facility will be used to fund loans originated on our platform and placed on our balance sheet. We then have the opportunity to sell these loans to both credit union partners and marketplace lenders.

X: How many employees does the company have now?

KS: We currently have 7 full-time employees.

X: What is your strategy?  Are you targeting major retailers or small, local retailers? What exactly is LoanHero offering?

KS: We target both small and large retailers, primarily in consumer goods, home improvement and medical services. The product we offer is a one-stop loan origination platform that merchants use to finance their customers. Our technology is completely paperless, decisions are instant, and the platform gives merchants all the tools they need.

X: How is LoanHero “disrupting the lending paradigm at point-of-sale?”

KS: Merchants currently utilize multiple financing programs to be able to provide financing options to their customers.

LoanHero provides a single platform in which we cover the full credit spectrum, allowing the merchant to submit one application and receive the best offer for that customer based on their credit. Without LoanHero, merchants would need to “guess” on which program their customer would qualify for, and submit multiple applications for various financing programs. Imagine the awkward conversation a merchant or sales rep has when their customer is declined for multiple financing options while they are trying to make the sale.

X: Don’t credit cards serve that purpose?

KS: Credit cards from Synchrony Financial and Wells Fargo dominate financing at the point of sale today. However, this option caters to the upper half of the credit spectrum and is not a fit for all customers. All big bank credit cards offered at the point of sale have an interest rate between 26.99 percent and 29.99 percent, but are often sold with an initial promotional offer of 0 percent interest. The terms of these credit cards are not entirely transparent, and LoanHero is passionate about fixing that with easy-to-understand terms and disclosures.

Our process begins with a soft credit inquiry, which does not affect a customer’s credit rating, and enables the customer to see what financing option they would qualify for instantly.

X: Are you targeting a high-risk credit market?

KS: LoanHero focuses on the middle-market in regards to our balance sheet, but we have multiple high-risk lenders integrated into our platform today, providing a full spectrum of financing solutions.

X: Is LoanHero focusing on particular cities? What is that strategy?

KS: LoanHero is currently focused in Arizona, California, Oregon, and Washington. We have plans to expand nationwide in September.

Bruce V. Bigelow was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Follow @bvbigelow

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