Fintech outfit National Funding raises profile

Small-business lender National Funding has done something that most of today’s alternative “Fintech” firms have not.

The San Diego company survived an economic downturn — but not without pain.

Founded in 1999, National Funding employed 200 workers in 2007 before financial crisis hit. By 2012, it was down to 40 workers.

That’s when Founder and Chief Executive Dave Gilbert recast National Funding into a technology-driven alternative lender.

“We brought in a bunch of tech people to help build scoring models,” said Gilbert. “These are really cash-flow driven models where you are taking attributes — both personal and business — and include that with social media and bank statements to create a proprietary scoring system.”

It also started making loans from its own balance sheet, using equity built up over the years. Before the crisis, National Funding tapped credit lines provided by big banks to fund short-term loans to small businesses.

National Funding is back up to 190 workers. The company said it has funded nearly $152 million in loans to small businesses in the first half of this year — up 45 percent from the prior year.

Revenue has grown 172 percent in the past three years, according to the company. First quarter revenue hit nearly $90 million, up 39 percent from last year.

Gilbert wants to raise National Funding’s profile — in part to attract employees. The company recently ranked in the top 10 alternative small-business lenders nationwide by deBanked.com, a trade publication for alternative finance. It is involved in sponsorships with the San Diego Chargers and San Diego Padres, and was the title sponsor of the 2015 Holiday Bowl.

“Before 2012, we weren’t a balance-sheet lender,” said Gilbert. “We didn’t see value in branding. We just stated seeing value in the past couple years.”

Alternative online lenders have sprung up in the wake of the financial crisis to fill niches in the market as banks have tightened standards for making loans.

These Fintech firms don’t face the same regulatory scrutiny as financial institutions. They rely on technology to speed up the approval process, which often occurs online.

Many emerging Fintech companies — such as local outfits Dealstruck and LoanHero — got their start after 2008 and haven’t yet had to weather a recession.

Gilbert said National Funding now lends about $20 million a month using its own balance sheet. It has credit facilities with Wells Fargo and CapitalSource, which are used to fund additional loans.

While the company loan size ranges from $5,000 to $500,000, National Funding’s average loan is about $50,000 with a nine-month term. Interest rates typically are 15 percent or higher.

“We help finance inventory, growth capital, marketing — or to patch you from Point A to Point B,” said Gilbert. “So we do a lot of construction, homebuilders, specialty trades that are waiting for receivables to come in but have another job.”

For a traditional bank, these small loans often aren’t worth the risk, said Gilbert.

The company expects to continue to expand into new industries and potentially tap into the micro-loan market, he said.

“There is a lack of capital out there for small businesses,” said Gilbert. “Business owners like speed. So when these technology driven lenders came out, it allowed people to borrow very efficiently at a competitive price point.”