When you need a loan, the cost and speed of getting it can be as critical to get right as the financing itself, a principle that might be even more relevant today in our shaky pandemic-hit economy than ever before. Today, a company that proposes to cut both the time and price for securing financing, with a platform, initially aimed at SMBs, that lets business owners put up their home property as collateral to get the loan, is announcing a funding round to expand its business.
Selina Finance, which provides loans to small and medium businesses in the form of flexible credit facilities — you pay back only what you borrow, and you do that over time, rather than in one lump sum — that are backed by the value of your personal home, is today announcing that it has raised £42 million ($53 million) — £12 million in equity and £30 million in debt to distribute as loans. The company says it plans to raise significantly more debt in the coming months as its business expands.
The funding is coming from several investors, including Picus Capital and Global Founders Capital — two firms that are tied in part to the Samwer brothers, which built the Rocket Internet e-commerce incubator in Berlin. The company's valuation is not being disclosed.
London-based Selina plans to use the funding in a couple of areas: first, to continue growing its business in the UK, which was founded by Andrea Olivari, Hubert Fenwick and Leonard Benning and launched in June 2019; and second, to start the process of opening up to other markets in Europe.
Selina today focuses on SMEs whose applications qualify as “prime” (as opposed to sub-prime). They can borrow up to £1 million in funds — the average amount is significantly less, £150,000, says Olivari — with interest rates starting at 4.95% APR. That undercuts the rates on typical unsecured loans. Selina is also in the process of getting a license to expand its offering to consumer borrowers, too.
We've moved on from the days when property investing was so stable that “safe as houses” was a common expression to mean absolute reliability. But for most people, their properties continue to represent the single-biggest asset that they own and thus become a key part of how a person might construct their wider financial profile when it comes to borrowing money.
Selina's tech essentially operates a kind of two-sided marketplace: on one hand, its algorithms process details about your property to determine its market value and how that will appreciate (or depreciate), and on the other, it's evaluating the health of the SME business, and the purpose of the loan, to determine whether the borrower will be good for it. It's only a year old and so it's hard to say whether this is a strong record, but Benning notes that so far, no customers have defaulted on loans.
“We have the security of the home, yes,” he said, “but we only take credit-worthy customers to make sure the default scenario doesn’t happen. It’s something that we avoid at any cost. Technically there is a long process that leads to that outcome, but it almost never happens.” He noted that Selina has people on its team who have worked for sub-prime lenders, which gives them experience in helping to determine prime opportunities.
More generally, the idea of leveraging your property to raise capital — say, through a remortgage or loan against its value — are not new concepts: banks have been offering and distributing this kind of financing for years. The issue that Selina is addressing is that typically these deals come with high interest rates and commissions, and might take six to eight weeks from application to approval and finally loan. Selina's pitch is that it can bring that down to five days, or possibly less.
“It's critical that we can make a loan in five days to be be nimble and accurate, because this is one area where banks break down,” said Fenwick. “It can take two weeks to arrange for someone to walk around on behalf of a bank to make a valuation. It's just a backwards and archaic process. We can use big data and tap different areas and dynamics all that into a model to assess the valuation of a property with a low margin of error.”
Selina is not the only tech company tackling this opportunity — specifically, Figure, the startup founded by Mike Cagney formerly of SoFi, is also providing loans to individuals against the value of their property, among other services. And for those who have followed other commerce startups financed by the Samwers, you could even say that there is a hint of cloning going on here, with even the sites of the two bearing some similarities. But for now at least Selina seems to be the only one of its kind in the UK, and for now that spells opportunity.
“Selina Finance is bringing much-needed innovation to the UK lending space by allowing customers to access the equity locked up in their residential property, seamlessly and on flexible terms,” said Robin Godenrath, MD at Picus Capital, in a statement. “The team impressed us with their strong focus on building a fully digital customer experience and have already achieved great product-market fit with their business loan use case. We’re excited and confident that Selina’s consumer proposition will also become an attractive alternative in the consumer lending space.”