Mobile Micro-lending and P2P Lending Made Easy
Traditional banks don’t lend smaller amounts of money and payday lenders charge exorbitant rates. As a result, the SoLo (Social Loans) peer-to-peer mobile micro-lending app was created specifically to provide more affordable lending options for people who need access to low-value funds. In April 2018, SoLo closed a $1.2M seed round of funding for the launch of their peer-to-peer micro-lending app. Some notable investors in the round include Qey Capital, Jumpstart Inc., Queen City Angels, Rich Dennis, and Monique Idlett-Mosely. The iOS open beta was launched on the Apple App Store on April 2, 2018.
Microloans are small amounts of money lent by individuals instead of banks or payday lenders. For people who don’t qualify for traditional personal loans or credit cards, or who are too embarrassed to ask family or friends for money, peer-to-peer lending platforms can provide a more affordable option than resorting to payday loans.
Research revealed that 78% of American workers live paycheck to paycheck, while 47% of people are unable to afford a $400 emergency expense without borrowing the money to get by. Borrowing low-value funds over the short term offer an easy way for people to access the money needed to cover emergency expenses.
Co-founder and CEO of SoLo, Travis Holoway said in an exclusive interview with The Scope Weekly, “We started this company because there was an extreme lack of resources for loans under $1,000.We believe that people will support us because resources for loans under $1,000 are so scarce and we’ve been right thus far.”
“The current options force some of our countries (sic) most noble but vulnerable citizens into debt. The idea of people lending and borrowing amongst each other in this form is refreshingly different than our predecessors.”
SoLo completed a start-up accelerator program with Lumos in Columbus, OH. It also completed the Hillman program in Cincinnati, the first minority and diversity-focused accelerator in the Midwest.
What Is SoLo Funds?
SoLo Funds is a mobile app that lets people borrow small amounts of money lent by peers. The intention of the company was to remove the stress of borrowing from family or friends and to eliminate the strain and expense of payday loans.
Founded in 2017 and based in Cincinnati, OH, SoLo Funds is a true peer-to-peer mobile micro-lending platform. The company was founded by Travis Holoway, Rodney Williams, Jarrel Carter, and Taylor Conophy.
The market is glutted with different peer-to-peer lending platforms and micro-lending apps. However, unlike other peer-to-peer lending platforms, SoLo lets people lend and borrow directly. There is no middle-man setting exorbitant rates and fees. Another key aspect that makes SoLo stand out from other competitors in the peer-to-peer lending space is that their primary focus is on small loans, with borrowers allowed to borrow as little as $50. Many other platforms, such as Prosper, set a minimum borrowing amount of $2,000, or the Lending Club with a minimum borrowing amount of $1,000.
SoLo’s mobile app provides the structured marketplace that lets borrowers and lenders choose the amounts they want to lend or borrow.
Holoway said: “All loans are 0% interest. For instance, borrowers can post to the marketplace that they need $100 and that they will repay $100 at a later date. There is no mandatory interest rate imposed on the borrower.”
SoLo generates its revenue by asking borrowers to voluntarily donate a tip. The borrower decides how much of a tip to leave SoLo for the convenience of having access to their platform.
How SoLo Works
SoLo’s app has a user-friendly interface that makes it easy for borrowers and lenders to create or fund loans in minutes. Borrowers who need access to short-term funds can create a loan request with a few taps on the app. Lenders choose to fund the request and the money is transferred to the borrower.
SoLo allows borrowers to lend as little as $50 or up to a maximum of $1,000. However, new borrowers may be limited to smaller loan amounts until they prove they can maintain their financial obligations and repay loans on time.
When asked how SoLo and the lenders make their money, Holoway told us: “Borrowers can “Tip” a lender if they choose to show appreciation for the financial assistance. For instance, a borrower requests $100 and says that they will repay $105 at a later date (30 Days max). But again, this is completely at the borrower’s discretion. SoLo gives no preferential treatment to loans that tip vs. no tip.”
The maximum loan term offered is 30 days. If the borrower is unable to repay the debt within 30 days, SoLo does offer a Rollover process in which the borrower is given a 2-week extension to repay the funds borrowed. If funds are rolled over, borrowers will pay a late fee that is paid directly to the lender.
SoLo’s app also provides free education for users. There is a full financial literacy curriculum available that helps users build smart financial habits.
The True Cost of Borrowing
Paying a $5 tip to the lender for the convenience of borrowing $100 now to help cover emergency costs seems like a small price to pay. The fee seems cheap on the surface, but it’s important to understand the true cost of borrowing money, regardless of how small the amount might seem.
If a borrower chooses to borrow $100, pays a SoLo tip of $1, and the lender markup is set at $5, the total amount repaid is $106.
Remember, SoLo charges 0.0% interest rate. Yet the real APR (annual percentage rate) is not the same thing as the interest rate. The APR takes into account all the fees and charges that could apply to borrowing money, including interest charges, fees, and any other costs that may apply. The APR gives borrowers a true picture of the costs associated with the loan.
As an example, a person borrows $100 and chooses to repay an extra $6 over a 30 day loan term. It turns out that the annual percentage rate of this particular loan is 73%.
The APR might seem high initially. Yet when you consider that many payday loans can charge up to 400% APR, or more, borrowing from SoLo to cover short-term expenses could represent a more affordable alternative for many people.
As with any form of credit, it’s important to read and understand the terms and conditions of the loan carefully before proceeding. If you’re borrowing money, take the time to understand the real cost of the tips you decide to leave both SoLo and the lender.
*APR calculation for example used based on the following:
Loan amount $100. SoLo Tip $1. Lender markup $5. Loan term 30 days. Total repaid $106. Calculation = Finance charge divided by loan amount, multiplied by 365, divided by loan term, multiplied by 100
6 / 100 = 0.06
0.06 x 365 = 21.9
18.25 / 30 days = 0.73
0.73 x 100 = 73%
Lending Money to Peers
Anyone with some extra cash can choose to lend money to peers in financial distress. Lenders also have the opportunity to generate a return on the money they lend.
SoLo’s app makes it easy to view all loan requests available. The lender can then check the borrower’s social credit score before deciding to lend money.
Holoway explains to the Scope Weekly: “Borrowers are given a “SoLo Score” which is based on the data we have about that user. The score is judging an individual’s ability to repay specific one transaction on one specific date. Again, there is no application (Approval or Denial) process, so all loans are placed to a marketplace and lenders have the discretion on whether or not they chose to fund a particular loan. The borrower sets the original terms. Lenders can request to edit the terms, but it’s up to the borrower whether or not they choose to agree to amended terms.”
In terms of the potential rate of return lenders might earn on their money, Holoway says: Lenders can earn a tip between 0% – 10% of a transaction amount. For instance, there is a $10 tip cap on a $100 loan.”
If the borrower still hasn’t repaid the amounts borrowed by the end of the agreed term, the loan then becomes eligible for collections. As SoLo doesn’t provide a debt collection services, it becomes the lender’s responsibility to engage a third party debt collector at their own cost.
In response to prospective lenders concerned about borrowers not repaying their loans, Holoway says: “To date, we have a 0.025% default rate.”
Remember to subscribe to our newsletter. Follow The Scope Weekly on Twitter and Facebook and Instagram.If you would like to become a contributor to The Scope Weekly, read our submission guidelines, and apply. For product reviews, click here.