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Launch HN: Lendflow (YC W21) – Infrastructure for embedded lending services
62 points by jon-fry 49 days ago | hide | past | favorite | 35 comments
Hi HN! We’re Jon and Matthew, the co-founders of Lendflow (https://lendflow.io). We make it easy for software companies to embed lending services into their product. It allows you to easily create your own version of Square, Shopify or Stripe Capital and offer it to your customers in-app.

Does it take your users 15-90 days to get paid out by their customers? You can embed a factoring product that gives them the option to get paid instantly for a small fee. Do your users purchase materials, supplies, inventory, or equipment on your platform? Embed a loan in your platform to give them timely access to capital to help them spread out upfront project costs, take advantage of wholesale rates on their purchases, or invest in more assets for their business.

We’ve been in the lending space since 2014 and have helped tens of thousands of small businesses acquire financing. We saw the struggles on both sides: how tough it is for small businesses to find the right lending products and how difficult it was for lenders to find the right customer at the right time. Companies like Square, Shopify and Stripe have launched capital programs for their users that allow them to get better priced, more timely funding for their business than they could elsewhere. It’s helped their business customers invest in themselves, grow and transact more, and made them more loyal to those services. And we're only scratching the surface!

The problem is that launching lending programs is complex, timing consuming and costly. It can take a team of 10 at least a few million dollars and 18+ months to get to market with their program. It takes significant upfront commitment and investment, making it very risky. This means the lending services aren’t offered and businesses don't get access to the capital they need.

It is really gratifying to see the impact of providing increased access to capital. We’ve seen restaurants who invested money in a digital transformation not only survive through the pandemic, but double their revenues and improve their margins by embracing take out and delivery. We’ve seen an HVAC company gain the ability to hire more technicians and triple the amount of customers they are able to service on a given day. A home renovation contractor was able to spread out his upfront costs over time to take on multiple projects at once, increasing his monthly revenue by 3x over the past 6 months. An ecommerce company was able to purchase inventory at wholesale rates and invest in an ad campaign to drive traffic to their store to increase sales by 240%.

We provide all of the infrastructure and tools to make it easy to launch capital products that can have this impact for small businesses. We’ve had platform customers get a lending program up and running in a day. You can customize the funding products and experience based on the needs of your own customers. You can use our platform to build a data advantage and more efficiently go to market with your own funding service. We have a lending API, pre-built customizable applications, lending service provider aggregation API, white-labeled sales and support teams to walk customers through the process, and connections into 85 of the top lenders and funding products available to businesses. We also can spin up custom endpoints to add new data points to underwriting models to help businesses obtain better rates/terms and to deliver a better experience. We are paid by 3rd party lenders for the work we do to onboard the small business for funding, and we split those fees with our platform partners. If you build your own funding service, you simply pay a subscription for using our tools.

We’re live and integrated with 32 platforms and are processing thousands of business financing applications per month. We successfully helped businesses access millions of dollars from best-in-market lending services. We also have customers who've used the data from their lending program to build their own custom funding products on Lendflow.

We’d love to hear how we can build better in-product lending experiences with you. The possibilities in lending are just starting to be explored. We're super excited to build the next generation of lending products. We’d love to hear your thoughts, please leave your feedback below!

> It can take a team of 10 at least a few million dollars and 18+ months to get to market with their program.

It can, but it doesn't have to.

Also: they key to running a lending business is risk management, and if there is any element that has led to lending businesses fail it is to appreciate the degree to which risk management skills dominate all others including technology skills.

Very cool. I'm curious--

1. How do you vet the lenders? Anything keeping them on a leash so they don't go too hard on past-due accounts?

2. Is the financing generally recourse to the owners?

3. Who's your biggest competitor?

1. We do vet lenders. We focus on bringing on the lenders with the best service, tech and reputation. We don't bring bad actors in the space, and if they don't service the borrowers well they are removed from the platform.

2. There are both recourse and non-recourse options.

3. Stripe released a product with some similarities recently. On the marketplace side we compete with companies like Lendio and Fundera.

This is confusing:

"If you build your own funding service, you simply pay a subscription for using our tools."

If a platform uses your tools, but not 'your' capital, does it still pay Lendflow a 2%/3%/5% fee on all the loans it issues? Or does it only pay Lendflow the 500/2.5k/TBD subscription fees?

The platform would not then pay a % fee on loans it issues. They would only pay the subscription fees and any fees for using services through the API.

Thanks Jon! Will be reaching out to you guys soon...

We're a Canadian company serving Canadian customers, though at some point we may expand into the US.

Are you a fit for us? If not, what are our alternatives?

We can help you serve Canadian customers as well. You are indeed a fit!

Very interesting. I'm working on products for embedding lending into various niche B2B transactions, especially things that are considered "lumpy" to cash-flow, examples are recruiting, software downpayments, deposits.

Have you come across anything like your product that exists in EU/UK?

Not yet, although the UK is coming up soon for Lendflow. EU will be a bit later but is on the way as well.

Great, will follow closely.

Isn't the field for this a bit crowded at this point with players like Affirm, Afterpay, Klarna, etc?

Those are companies providing consumer loans placed in a ecommerce checkout workflow.

We're focused on business funding options placed in a broader set of workflows. Think lending services in workflows based around payments, procurement, invoicing, ect.

so is this more of a cashflow tool? you guys are an in-app float?

You can do that, we have several customers launching a product for this purpose.

You can also build services for a broader set other use cases. Including financing purchases like inventory, equipment, supplies, inventory, real estate, ect. Or just more general purpose funding, it just depends on the user base and their needs.

AFAIK those players are all consumer lending services. Ie, I want to buy a Peloton, and spread it out over 36 monthly payments.

This sounds more like business short term lending. Ie, I have 100k in orders, but need 20k to buy materials up-front. Or I have 100k in outstanding payments due in 30 days, but I'd rather get 95k right now.

that's right!

The description makes it sound like this is lending to businesses, not consumers.

Who do you think are your customers. As I understand, using your API’s anybody can start a small business lending program. Ok but then how do your customers make money. Do they do collections on lenders or do they just generate leads and pass them off to lenders?

We handle everything (all support and onboarding) until the funds are disbursed by a 3rd party lender/funder. This is to keep the experience consistent across all of our financial institutions.

Our platform partners makes money by earning a % of the loan value from each business that is funded.

If our platform partner decides to fund businesses themselves, then yes they'd need to collect from the small businesses and earn the full margin on each loan they issue.

Definitely see how embedded lending could be a value-add for a number of businesses! Two questions:

1. Is the main draw for your customers being able to increase customer retention over time?

2. How are applications distributed to the top lenders, on the back end? Is there an auction process?

1. I think the main draw depends on the objectives of the customer. For many the priority is going to be improving retention, but for others it may be increasing revenue per user or driving adoption of another product or feature. Ultimately it all leads to higher retention, that just may not be the main draw starting out.

2. We compile data on the business as if we're underwriting them for a loan, although we never actually lend or take balance sheet risk. We use the data to place them with a batch of lenders (typically about 3) that's going to be the best fit for their risk profile and use of funds. We take the best pricing from the batch to present to the borrower. The goal is to send them to as few lenders as possible while acquiring the best pricing available on the market.

Interesting. I heard Immad from Mercury talk about you. Really impressed that you started this up without the "team of 10 and a few million dollars"! How did you manage it or am I misreading something?

We've been building in the space for a number of years on previous products/companies. It's been a long learning process. All in all, I'd say at least that has gone into it!

Is there a usecase here for marketplaces? So you could sell to a marketplace like ThredUp, and then ThredUp would offer lending to its consumer audience?

Am I understanding this correctly?

Marketplaces are great, but the lending product would be to the businesses on the marketplace. Not the consumer side.

Gotcha, so it'd be a product offering for the supply, not the demand.

Do you use the transaction history of the sellers to know if they're good to lend to?

Yes, that's right.

We have an endpoint where we can generate prequal offers for a business based on the transactional data. We can also incorporate into the package we send to lenders to get business improved loan pricing.

This may be a naive question: is this a white labelled Klarna-like service?

There's definitely some areas of overlap in that we're both offering the ability to add financing to a use workflow. Some differences are that we're focused on small business while Klarna is focused on consumer. Another is that they're focused on a consumer checkout process with a buy now pay later product.

While you could certainly create that type of product on Lendflow, it's not limited to just buy now pay later. There's a much broader set of funding products you can build and user workflows you can integrate them into.

Klarna is consumer focused.

I like the idea but am irritated that there's upfront Pricing involved. If my software is sending you customers for loans I should be sharing a commission with you and that's that. Why do you need money from me to let me send you prospects?

Definitely understand where you’re coming from, I think you're looking this through the lens of the way these types of programs have worked in the past.

With us, these are always your customers, we're just allowing you to launch your own capital program for them. We aren't having you "send us prospects." Instead, we're providing you the infrastructure so you can get them funded them on your platform. We keep them in your product and ecosystem, and your users never need to know who Lendflow is (if you wouldn't like them to).

We provide a lot as part of the program, including the technology, customer support and onboarding, dedicated phone lines and email integration, and the go to market sales and marketing collateral.We also provide the data and analytics for your program, so you can better run your service with us over time.

There are a lot of costs associated with these services, so the subscription keeps our incentives aligned with our platform partners and the small businesses we’re serving together.

Not sure I understand this. When someone chooses to factor with "me" (Lendflow under the hood) is it me making the factoring revenue or you?

That would be one way to model such a service, but certainly not the only way. Their pricing optimizes for a particular customer profile, and that may not be you.

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