Hyphen Funding, a financial technology firm based in Prairie Village, formed its first banking partnership with Lead Bank, which is based in Garden City, Mo.
Hyphen Inc., which was founded one-and-a-half years ago, offers an online short-term lending solution for small to midsize businesses. It collects data from business owners in need of a quick short-term loan to finance an opportunity, such as a big order coming in that requires purchasing raw materials to fill. Then, Hyphen connects them with a lending source. Currently, Lead Bank is the company’s only bank loan issuer.
“We contracted with Hyphen to provide marketing leads and provide servicing through their platform,” Lead Bank CEO Josh Rowland told the Kansas City Business Journal. “We do the analysis and underwriting and then we decide whether to make the loan or not. The loans and the relationship are then ours. But we rely on Hyphen to cultivate the market nationally for these loans and then introduce them to us.”
Most traditional commercial banks avoid these types of loans because of the risk required. The average loan is about $150,000, which is not a huge loan for a bank. These opportunity loans — loans where a product or payday hasn’t been realized yet — are a far riskier prospect than traditional banking loans, which use machinery or accounts payable as collateral.
Although the interest rates on these short-term loans are higher than traditional loans, many businesses are willing to pay. That’s because the alternatives often are getting a cash advance on a credit card or paying hefty penalties to tap into a retirement account.
“We have a lot of people who come to us in September with an opportunity at Amazon, but they need to start production today in order to have product to sell over the holidays,” Hyphen founder Ryan Sullivan said. “A bank underwriting process typically takes 90 to 120 days. We use big data and proprietary algorithms, and can provide that approval process in two to three days. We’ve removed the human bias from a credit decision.”
Rowland said this isn’t a product for people scrambling to avoid bankruptcy. The bank is looking for strong businesses in need of a short-term, opportunity-driven loan. “These loans are designed for a business with an opportunity to grow,” Rowland said. “If they had financing to expand their production line they could grow. That’s what this financing tool is designed for.”