Credit Jason Henry for The New York Times
At the start of this year, Earnest was an intriguing but small entrant in an emerging field of start-ups using new tools of data and software to analyze credit risk and make consumer loans. Its loans were typically a few thousand dollars for things like relocation expenses and professional training.
But today, the lender, based in San Francisco, is growing at a torrid pace, and on Tuesday it announced a $ 275 million round of debt and equity to fund further expansion. Already this year, Earnest has made 50 times as many loans as last year, and it is lending from $ 2 million to $ 5 million every day, said Louis Beryl, a co-founder and chief executive.
That trajectory caught the attention of Earnest’s new investors. “Rarely do you see a company go from zero to 60 this quickly,” said Roger Lee, a general partner at Battery Ventures, which led the equity round of the new financing. Mr. Lee is joining the Earnest board.
In this round, $ 75 million is equity investment, and $ 200 million is debt funding. The debt portion is led by New York Life. The new financing brings the total raised by Earnest, founded in 2013, to $ 325 million.
Earnest now employees 165 people, up from 30 at the start of this year. Mr. Beryl says he plans to hire about 200 more employees over the next year, especially technical people like software engineers, data scientists and user-experience designers. The long-term goal, he said, is to “build a platform for the next generation of consumer financial services.”
The financial service that has carried Earnest so far is refinancing student loans, which it began at the end of January. It is by far the largest part of the company’s business, and Earnest’s success points to the opportunity in services to ease the burden on the nation’s debt-laden students and recent graduates. Student loan debt is more than $ 1.2 trillion, growing by about 10 percent a year. Student loans are held by 40 million Americans.
Earnest is focusing on the more indebted recent graduates. The size of its average refinancing loan is $ 70,000. The start-up says the average saving, on its refinanced loans, is $ 18,000, typically over 10 years.
Other online lenders, like SoFi and CommonBond, have also done well in the market for refinancing student loans. But Earnest says its approach is particularly data-intensive, which it says allows it to tailor rates to individual circumstances. It asks its customers for digital links to their bank, credit card and retirement and investment accounts, and information on all their loans. “They are willing to share their data for a better consumer finance experience,” Mr. Beryl said.
Earnest says it has read-only access to the information. It pledges not to store personal data or sell it.
Earnest has made individual loans of more than $ 250,000. Traditional credit scoring, Mr. Beryl said, tends to punish high student debt loads. But such Earnest borrowers, he said, are in fields like brain surgery and dental surgery, where education is lengthy and costly. “These are people with great jobs, great educations and great earning potential,” he added. Earnest borrowers average a bit over 30-years-old â young people with slender credit histories and thus charged higher rates by traditional banks.
Mr. Beryl said Earnest has had no delinquency problems on its student refinancing loans. And Mr. Beryl, 34, is one of those prompt-paying customers. Having attended Princeton, Harvard Business School and Harvard‘s Kennedy School of Government, he had $ 100,000 in student loans at the start of the year. He has paid down some, but still holds student loan debt, he said.