When Michael Garrity founded CommunityLend in 2010, he thought his company was in a perfect position to capture an untapped market. After all, the 2008 financial crisis made many banks wary of lending too much cash, presenting a golden opportunity to non-traditional operations like CommunityLend. Plus, the company’s peer-to-peer model was the first of its kind in Garrity’s home country of Canada, marking a major advantage for the startup.
Despite these benefits, though, CommunityLend had trouble finding qualified borrowers for their service. With no one to lend money to, Garrity quickly realized his company would need to switch business plans fast if it was going to stay afloat. Luckily, in its first months of operation CommunityLend heard from many other potential clients besides those with bad credit. Garrity received calls from dozens of small businesses checking to see if his company offered point-of-sale customer lending services like installment plans. The recession had eliminated many of these lenders, leaving retailers desperate for additional consumer financing options. Although Garrity initially brushed off these inquirers, he soon saw their worth and began to call them back.
Next, he needed to convince investors that pivoting to a new concept was necessary for the company to thrive. Shareholders didn’t want to abandon CommunityLend entirely, though, so Garrity launched his retail lending firm FinanceIt as a sister operation. Within months he signed up hundreds of new clients for FinanceIt, leading him to the conclusion that the two firms could not feasibly coexist. Unfortunately, axing CommunityLend meant that many employees got shown the door. “We lost 80 percent of our team as we moved from peer-to-peer lending to a point-of-sale financing company,” said Garrity. “We did a big management change-out, because some hires made sense for CommunityLend but not for FinanceIt.” Nevertheless, the difficult switch seems to have been worth it in the long run: FinanceIt has processed more than $650 million in loan applications from more than 3,500 clients in Canada. With so much domestic success, the company is now looking to expand its retail lending strategy to the U.S.
Questions:
- Why are lenders adverse to finance small and emerging businesses?
- How do point-of-sale customer lending services work?
Source: Liz Welch, “A Third Way to Pay,” Inc., July-August 2014. Photo by: David Goehring.