Australian fintech Credi aims to give peace of mind to parents lending money to children through a new loan management platform for families and friends.
The fintech not only formalises loans for the bank of mum and dad (BoMAD) but also loans between friends, loans secured by an asset and loans between a business and its directors or shareholders, while protecting all parties and enabling a repayment structure.
Credi is designed to counteract the disadvantages of loan arrangements, such as high legal feels and poorly documented loan arrangements with its cloud-based platform covering the entire process of the loan from negotiation to an e-signature.
Those making loans on Credi are not seeking financial gain but instead providing finance with lower interest rates and repayments on average when compared with those from traditional lenders.
Tim Dean, founder of Credi says: “The reason we have a purpose is because as family and friends we want to help out people who we care about, who either can’t get finance elsewhere or finance that they can access but is expensive.”
Credi’s typical lender is an over-45 homeowner and the borrower is typically over 25 with the average loan amount being roughly $80,000. The average loan length of 3.5 years and an average interest rate is just under 3 per cent.
On the other hand, the current cash rate is 1.5 per cent and mortgage rates vary from 3.5 per cent to 4.5 per cent. Those lending through Credi are getting a higher return than they would if they had their money in term deposits and the borrower is paying a lower interest rate than they would on a home loan.
Dean says: “The differential rate between the bank of mum and dad and the rates that you offer your mates which we call ‘official mates rates’ show that there is no question that is the best deal around.”
According to the Australian Prudential Regulation Authority, BoMAD is ranked among the top 10 lenders in Australia, dishing out over $29 billion to first home buyers and beating out lenders such as AMP Bank and ME Bank.
Credi has around 5300 people on the platform that has structured in 1600 loans. In Australia, the platform is servicing around $110 million worth of loans that have been set up and being paid back.
Dean says: “The bank of mum and dad is probably one of the largest loan books in the world and it needs a system which is us.”
Last month, Credi launched an equity crowdfunding campaign on Equitise to raise funds for marketing with a minimum target of $200,000 and hopes of reaching a maximum of $1 million.
Currently the campaign has raised $96,810 with 10 days left. The minimum investment parcel starts at $210 and at 10.5 cents per share.
According to Dean, raising through crowd-sourced funding came naturally as Credi had interest from current customers and managed to raise around $300,000 over 12 months from them.
Dean says: “We had successive conversations and received lumps of money from customers who have been using the product and in conversations with us have asked if we are looking for investors.
The platform offers a one-off set up or more comprehensive offerings through Credi Platinum and Credi Partner. Credi Premium is a mass appeal platform which contracts and manages loans between individuals and Credi Partner is a comprehensive loan administration system used by advisors for their clients.
Credi Premium charges an initial setup fee of $80 to $1450, with a transaction fee from $15 per month depending on the loan type. The highest transaction fee registers the loan as a General Charge over the borrower’s assets on the Personal Properties Securities Register (PPSR).
The PPSR is a national online register that provides information about personal property and if it has a security interest attached to it.
Credi intends to launch a “family funded” debit card in partnership with an Australian neobank later this year. The card will feature automatic repayments via direct debit and forecasts 10,000 account holders and $300,000 of revenue.
Credi is exempt from the provisions of the Credit Act, due to the nature of the loans it facilitates on its platform and the part it plays in the loan establishment, agreement and ongoing management.