If the American banking system isn’t broken, there are definitely plenty of cracks. Earnest, a self-described “merit-based lender,” can identify those who slip through them. Traditional banks use credit scores to determine if you’re eligible for a loan. Earnest doesn’t believe those scores offer a complete picture. It’s leveraging technology and up to 100,000 data points to get a more complete picture of each client, scraping everything from bank accounts to LinkedIn profiles to offer those who qualify the lowest possible rates.
Sometimes better businesses are born of frustration. Earnest CEO and co-founder Louis Beryl discussed his own experiences securing loans with Forbes. In 2003, Beryl was preparing to move to New York City for a job at Morgan Stanley. The company offered to pay for moving expenses, but first he had to cover the cost. He was 22, fresh out of college, and he needed $8,000. Even though he had a good job lined up, his credit history was too thin. He eventually turned to his alma mater Princeton for a loan. Six years later, when he needed a loan to pay for his MBA at Harvard, he avoided high interest rates by borrowing at 4% through his mother and her home equity line.
“I knew in my gut how low-risk I truly was,” Beryl said. He and co-founder Benjamin Hutchinson are following their guts by using data to identify prime borrowers who look subprime to old-fashioned banks. Think doctors with massive student loan debt who have high earning potential. Earnest’s software platform helps it identify high-quality clients, evaluating them by education history, current and past income, savings, and debts, and employment background. These amount to safer bets, which helps Earnest offer lower interest rates.
Low APR is just one of the features Earnest uses to attract customers. Flexibility is another. The company lets borrowers set the payment amount they want and the number of months they’ll take to pay it off. And for those who want to go back to school or find themselves unemployed, the company allows borrowers to defer payments.
Founded in 2013, the San Francisco-based company’s services are available in 37 states and Washington D.C. Earnest has raised $99.1 million in venture capital and $200 million in lending capital. In February 2016, the company packaged $112 million worth of loans. It was the first securitization by an online lender this year, according to The Wall Street Journal.
“We’re building a 100-year company,” Beryl told Entrepreneur. “We want our clients’ happiness to be so good that their grandkids will be our customers.”
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