A two-year old fintech company co-founded by a frustrated Hollywood writer-turned funeral home owner is hoping to become the Match.com of lending.
Since its launch in January 2016, Sacramento-based startup Magilla Loans says it’s originated more than $5 billion in loans and is changing the way lenders connect with borrowers. The platform can shrink into a few days what can often be a weeks- or months-long process of loan applications, data submissions and waiting just to get a loan term sheet.
“It’s very similar to a dating app,” particularly for borrowers or lenders with fairly niche interests, one of the company’s co-founders, Dean Sioukas, told Bloomberg Law. “We’re just trying to speed things up on the front end,” Sioukas said.
Magilla classifies itself as a “software service,” rather than a loan broker, with a platform akin to an online “relationship search engine” that pairs up borrowers with financial institutions in a specific state or nationwide. Bank of America, BB&T, JPMorgan Chase, and PNC Bank are among the banks using Magilla’s platform.
“There are plenty of community banks in L.A. licensed to lend in California. What if there’s a community bank in L.A. perfect for my type of loan needed in Sacramento?” Sioukas said. “With Magilla you are less stuck because we have opened up the possibilities a lot wider,” he said.
Magilla offers deposit-insured banks and credit unions a subscription fee for access to borrowers, which can include those with specialized financing needs. Borrowers seeking chicken coop purchases, brewery or dental equipment, and franchise financing have all gone through the site. Magilla also supports run-of-the-mill mortgages, new home construction and auto loans, among many other flavors.
Currently, the site has seen a near-even split between borrowers seeking residential versus commercial loans, at 51 percent and 49 percent, respectively.
From Showbiz to Funeral Homes
The focus on niche industries comes from fellow co-founder Chris Meyer’s background running funeral parlors. Meyer got into the mortuary industry after 11 years as a struggling Hollywood screenwriter. Funeral homes turned out to be a better livelihood, he said.
“We bought a funeral home that was on the cusp of bankruptcy, and we turned it around,” Meyer said. He bought another two funeral homes over the next decade. “I took out 14 loans over a 10-year period, and I would do the same thing every time,” he said.
That included handing over stacks of tax forms, business and personal account information, and filling out loan application forms with multiple banks, followed by weeks of waiting for a request for more paperwork or a loan offer. Often that entailed a 20-something-year-old banker poking holes into his business operations, or categorizing his profitable, 45-year-old funeral home operation as a startup, Meyer said.
“To do everything I did to get a term sheet from one bank was a two-and-a-half to three-month process,” Meyer said.
Sioukas, a real estate developer, told Meyer, his friend, there had to be a search engine to streamline finding and comparing loan offers. “We couldn’t find it,” Sioukas said.
Through YouTube tutorials and Sioukas’ coding skills, they developed Magilla. More than $600 million of loans went through the first iteration of that site, Sioukas said.
In an era where consumer data seems constantly at risk of cyber attacks, Meyer and Sioukas approached the site’s data requirements from the perspective of preserving their own privacy while providing the minimum information bankers needed to evaluate a prospective borrower.
“It was an accident that was good for us as borrowers was good for everybody,” Sioukas said.
For borrowers, Magilla says it provides greater anonymity than other online lead generation sites. Borrowers don’t submit their name or other personally identifiable information when making a loan request. Instead, they’re asked to provide detailed financial information about themselves, their company, and the business or investment they need financing for, and how soon they need the loan.
Sioukas said the trade-off for borrower anonymity is greater accuracy of financial information up front, including for events such as bankruptcies, assets or debt. “Why would I lie now? I’m anonymous,” Sioukas said.
Lenders get notifications when a credit request meeting their criteria hits the system. The lender makes an offer and the borrowers get to pick and choose from multiple offers that include a rundown of initial terms.
Once the borrower selects an offer, they connect directly with the loan officer and provide them their personal information to formally underwrite the loan.
Innovation for Lenders
Magilla’s loan matching model wasn’t always an easy sell when it first launched. “In the beginning, the bankers were fighting it,” said Sioukas. Loan officers wanted all the information they could get about a borrower before even considering whether the loan fit in with their portfolio targets that month, he said.
“We said, politely, you’re not going to get it,” Sioukas said. “But if you want to be an efficient lender and narrow your focus and narrow the borrower’s focus, this is a great tool for you,” he added.
That proposition seems to be working for banks and other financial institutions subscribed to Magilla’s platform. Magilla vastly extends a banks reach while reducing the cost of customer acquisition, while helping reduce marketing costs.
“Our M.O. is to have a large salesforce looking for opportunities. But when you look into expanding our footprint geographically, we don’t have that degree of connectivity,” James Beckwith, president and CEO of Five Star Bank, which specializes in commercial real estate lending, told Bloomberg Law by e-mail. “Magilla provides us with access to markets and deals we weren’t exposed to outside of Sacramento,” Beckwith said.
With more than 27 years in the finance industry, Beckwith said he’s witnessed major changes across the lending business, including the proliferation of fintech partnerships.
“From a lender’s perspective, we’re particular about the way we review potential borrowers,” Beckwith said. Though the online lending model has benefited the finance industry, there were few options available to lenders focused on commercial real estate, Beckwith said.
Magilla has helped Sacramento-based Five Star Bank close that gap. The bank has used the platform for more than two years to generate office, multi-family, and industrial loans. “Magilla is helping us expand with deals we weren’t aware of before, giving us a greater geographic footprint,” Beckwith said.
The company’s founders say that wider net, coupled with cost reductions, is one of their key selling points. “We see ourselves for the major banks as a massive efficiency play,” enabling them to spend less on marketing and business development, while ramping up lending, Meyer said.
“We believe we’re going to cut lending divisions in half,” Meyer said.
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