The ability to innovate is one of the most important things for any company that wants to remain successful for a long period of time.
Sharestates is only about five years old but it has been growing rapidly since its inception. Even though 2019 was a record year for the company, closing around $800 million in loan volume, it was also a big year in terms of corporate governance and oversight.
While five years is hardly a long period of time, Sharestates has found a lot of success and is now looking to grow and change in a number of different ways this year. One of those ways is to focus on being the lender of choice for borrowers, not just investors. The reason, says Sharestates CEO Allen Shayanfekr, is because there’s been so much education about their products in the investment community that investors have come in droves. Now, he said, they’re looking for a little more balance.
“There’s a ton of capital in the space right now—not just for us, but for lenders like us—where it’s become a more competitive environment for sourcing borrowers. Now, you’ve got to make sure that you’re actually sourcing good borrowers,” he said.
One of the ways that Sharestates has done that is that they’ve built their business to be flexible and evolving with their borrowers needs. They partner with dozens of institutional investors as well as retail and individual investors which provide them with different “pockets” of capital, with different credit boxes and different desires for different types of loans, which has led them to create a diverse product offering.
Sharestates has recently launched some initiatives that has boosted its standing in the lending space. For starters, its begun to move out of its box as purely a marketplace funding platform and are closing a captive finance vehicle that’s going to allow them to keep some loans on their balance sheet, rather than sell off the loans.
“It’s going to give us more funding power, it’s going to give us more flexibility, and the ability to do more nuanced type loans for some of our VIP borrower relationships that we may have otherwise been unable to do,” Shayanfekr said.
Eventually, the plan is to aggregate loans in that balance sheet vehicle and do a securitization of those loans, which will bring down the cost of capital. This not only means wider margins, but the ability to pass on some of those cost savings to their borrowers and be more competitive in the marketplace, and capture additional business.
Another first for Sharestates will be the rollout of their software licensing division. There’s a real lack of loan management system (LMS) for this type of product, Shayanfekr said, but they’ve “cracked the code” for that, creating a technology that has streamlined the process and made it more efficient for everyone. They’re in the process of making their proprietary software more customizable, so that if somebody were to license the software, they have flexibility to match the software to the needs of their business.
Whereas before Sharestates was a great lender for focusing on short-term, 12-24-month loans, now they’re originating 30-year mortgages so that borrowers can effectively refinance form a bridge product, and that picked up in popularity pretty quickly. Shayanfekr said that the company plans to expound upon that in the coming year.
“Borrowers have enough to manage on a day to day basis when it comes to construction and managing their properties. The last thing they need to do is juggle 20 different lender relationships to get the products that they need,” Shayanfekr said. “At the same time, because we have so many different pockets of money, we don't run into concentration exposure limits to anyone investing . . . borrows can scale with us.”
In 2020, their target volume is $1.1 billion in loan volume, and Shayanfekr thinks it’s possible thanks to those initiatives.