Online lender, eProdigy, announced that they have sourced $100 million from an undisclosed private equity firm, through a term loan and convertible note, to expand their alternative finance lending. Initially focused on providing cash advances to higher risk merchants, according to eProdigy CEO David Rubin, the funding will reduce the firm’s cost of capital, allowing them to “be able to target A and B credit borrowers, offer a broader range of products, and provide more competitive terms and rates”.
The funding reveals the continued interest of institutional players into the alternative finance sector. Although having its roots in peer to peer (P2P) lending matching individual borrowers and lenders, capital for online lending has become dominated by institutional players such as hedge funds, pension funds, and private equity shops. Their attraction stems from the ability to source better returns on their investments from marketplace lending platforms like eProdigy than through traditional securities.
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In the current funding for eProdigy, the private equity investors also showed that they viewed the potential of the online lender positively. As such, rather than the $100 million being made available as a loan, the investors also used a form of hybrid of debt where the convertible note portion is a $20 million facility with the noteholder’s right to convert the full amount to equity at a $100 million valuation.
Institutional investor appetite exists for alternative lenders – Dan Avnir
Commenting about the demand from institutional investors to participate in the alternative finance space, Dan Avnir, Managing Director of Bryant Park Capital, stated in eProdigy’s public statement, “Institutional investor appetite exists for alternative lenders with technology savvy platforms capable of scale and compliance. It’s those alternative lenders that will be best positioned to further reach into banks’ traditional territory.”