Credi has spotted a market opportunity amid strong growth in the ‘Bank of Mum and Dad’
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According to RMIT University, the ‘Informal bank of Mum and Dad’ (and family and friends) is the fifth largest lending institution in Australia, lending over $65 billion.
Founded in 2017 by Tim Dean, fintech start up Credi has developed a lending platform that effectuates this unregulated market, designed to create, manage and automate personal lending.
It’s inspired by Dean’s own experience as a parent to navigate his adult children away from high cost credit and teach them how to repay and manage a loan responsibility.
The platform manages lending between known parties, from small loans between mates, parents providing deposits for a house, investors seed funding a start-up, businesses lending to directors or self-managed superannuation funds lending to third parties.
Dean envisions Credi as main platform for “relationship lending”, reducing the stress associated with potential risk of default.
Since relationship lending is omnipresent in society, Credi leverages this notion, structuring transactions through verified documentation and managed agreements.
Credi provides additional loan services such as email & SMS reminders, interest calculators, and loan flexibility including early repayments and term amendments in some cases.
Credi is currently participating in a crowd-sourced funding raise for up to $1.5 million through the Equitise platform.
Dean says there is already significant interest from the company’s user base of more than 5,000, including keen international investors.
Credi will issue ordinary shares valued at $1 through the Equity crowdfunding platform with a minimum target of $500K, up to a ceiling of $1.5M.
The company will use the funds raised in order to scale the business, with hopes to generate more users and partners.
Globally, ‘lending between related parties’ is a billion-dollar industry, but up until now there’s not been an easy and affordable way to formalise terms and automate the repayments of those loans.
Dean believes that the small business credit crunch is leaving more entrepreneurs knocking on the doors of their family members and friends as interest rates for start-up can be 20% or more, while the ‘Bank of Mum and Dad’ could be 2 per cent to 3 per cent p.a.
Credi allows family friends to broker loan agreements between themselves with a formal contract. Lenders can also register on the Personal Property Securities Register and be recognised as a priority credit to a business for $450.
Hosted on an online platform, Credi allows users to negotiate the key terms of a loan, being able to calculate interest in a variety of different methods. Loans on Credi also have the capability to be amended, supporting interest free loans that can also be repaid early.
Credi claims to be the first platform that empowers individuals to create informal loans on a formal basis. Example of loans that can be formalised: parents providing the deposit for a house, seeding funding for a start-up business, or low-value loans between individuals.
In most cases, when lending to a friend or family, the terms and conditions of the loan agreement is not usually formalised or in writing. As a result, issues can arise, possibly ruining relationships with those involved. Therefore, it is a requirement for Credi to get both parties to agree and customise the loan’s terms which is then eSigned by both lender and borrower.
Users can also track loan repayments through the Credi Track app. Lenders are able to update repayment statuses and add manual non-scheduled repayments. Users can also view upcoming repayments, reducing the uncertainty out of agreed repayment dates.
Co-founder of Equitise, Chris Gilbert, said Credi is the perfect start-up to embrace equity crowdfunding not just because of its business model but because of its disruptive nature to the banks and other lending solutions.
Since the company’s establishment in 2017, Credi has facilitated more than 1,600 loans totalling $106 million. The company says that overall it has attracted more than 4,900 users to its platform.
Credi hopes to see an increased user base of 50,000 in the span of three years, with a potential IPO in 2021.
Having so far invested more than $1 million into the business from friends and family, Credi is hoping to start generating revenue this year.
While hosting loan agreements, it is imperative that Credi maintains and upholds government legislation surrounding loan facilitation.
The main risk that the company faces is the potential threat of law amendments, restricting Credi’s business model.
Moreover, Credi must ensure that all their contractual documents meet government standards, guaranteeing that there is no danger of legal action from its users.
Credi is has an established platform, however, investors must evaluate the company’s valuation whether to see if the company’s business model has the potential to become profitable. If you’re unsure, ask the “Bank of Mum and Dad”.
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This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
Former fund manager and finance academic, Dr Nigel Finch advises growing business on strategy execution, corporate governance and capital raisings. He has worked across all stages of the business cycle from start-ups to seasoned ASX-listed companies including many who have tackled Asia’s emerging markets. Authoring more than 5 books and 100 scholarly articles, Dr Finch has a thing or two to say about business.