For many of us, quarantining at home finally gave the freedom of time to dive into a new project, try a new hobby, or just binge-watch a Netflix show. For Amber Bond, it was time to spend with her newborn son and finally get the wheels turning on her startup, Durham-based Davos.
Bond was working for the Carolina Small Business Development Fund—a Community Development Financial Institution (CDFI) based in Raleigh—when she first had the idea for Davos a couple of years ago.
While working closely with lenders like CDFIs and community banks, she saw firsthand how their resources were tight and they didn’t have extra money to invest in platforms and technology to make the lending process smoother. Bond also said the application process for a loan guarantee was tedious and non-transparent from the lender’s perspective, and getting the guarantee could take as long as six weeks.
“I’ve spent years being frustrated by several of these challenges,” Bond said. “And at that same time, I was working with borrowers who also saw huge hurdles and barriers to access to capital, and I thought there had to be a better way to do this. But in that career I never saw it in fruition.”
Bond started Davos as not only a platform to match lenders and borrowers, but as a way to incentivize lenders to take on potentially risky borrowers by guaranteeing up to 90% of the loan for qualifying borrowers.
“We’re helping the borrower by taking on some of the risk in the transaction, which makes them more attractive to lenders,” Bond said.
Instead of denying a qualified borrower with high-risk factors—like a less-than-perfect credit score or insufficient collateral to secure the loan—lenders can apply for a guarantee on Davos’ website. The application takes about an hour or less to complete, and lenders will immediately receive a determination of approval or denial. If approved, the guarantee agreement will be sent to the lender within two business days.
“Before, it would take weeks to get an answer on that guarantee decision—now they can get it in an hour,” Bond said. ”That way, they can close loans faster and get capital into the hands of the businesses that need it, without excessive delays.”
The expediency of the process is largely due to a decision-making algorithm Bond developed that automates application decisions on both traditional and non-traditional criteria such as risk of loss and risk of default.
From now until 2021, Bond is working on integrating the algorithm on a Salesforce-native app.
Bond said Davos will generate revenue from lenders, who will pay Davos 2% of the guaranteed portion of the loan amount, plus an ongoing maintenance fee to keep the guarantee active.
The decision-making algorithm is also used as a pricing model to determine the maintenance fee, which will range from about 0.2%-0.67% of the guarantee amount.
Bond is launching Davos in two phases. During phase one, starting January 2021, Bond will focus on engaging directly with lenders and providing guarantees for loans that already exist in their pipeline. During phase two, Davos will serve as a lender match platform, working directly with borrowers to underwrite, guarantee, and match them to safe lenders in their market.
“The idea is to take 2021 to build the portfolio of lenders on the marketplace, so that once we open the door to begin to attract borrowers directly, we’ve already got a very healthy marketplace of lender options on the platform,” Bond said.
Davos is one of the finalists for NC IDEA’s $50K SEED grants. Bond said she is currently bootstrapping funding, but was going to start seeking out investors by the end of October. Her goal is to raise $4.5M.