Fig offers an alternative to payday and pawnshop loans

JOHN LI, 29, and Jeff Zhou, 26, both of Center City, co-founded Fig Loans, a startup that aims to provide small, short-term loans to borrowers who otherwise would be payday- or pawn-loan customers. Fig is a semifinalist in the Business Plan Competition at Wharton, where Li and Zhou are MBA students. I spoke with Li.

Q: How'd you come up with the idea for Fig Loans?

A: I looked at the balance sheet of a public payday lender, and they have a 10-percent profit margin, 30 percent is advertising, 30 percent is loan losses and 30 percent is overhead. You're charging people 500 percent interest per year, and a third of that is going to advertising. We spoke to nonprofits with financial-literacy programs, and they showed us it was possible to lend money at 8 percent and break even. We've decided to partner with them and we're working on agreements now. We thought if they sent [consumers] to us, we wouldn't have crazy advertising costs and could pass savings back to consumers.

Q: The startup money?

A: We're bootstrapping. In order to be an online lender in this space, you need about $50,000 of loan capital to start. Friends and family put up money.

Q: What kind of loans?

A: We're starting with $300 loans. The difference between us and a traditional small-dollar loan is we do it over an installment period, so we give out a loan for four months and our interest rates are designed so the loan is paid off over that time. That would work out to a payment of $40 every two weeks, so at the end of a 16-week period, you're done with all payments.

Q: The biz model?

A: We've opted for a for-profit model with a social mission to give back 20 percent of our profits to support financial-literacy and counseling programs. We make money the same way a traditional lender does.

Q: Target customers?

A: Single, mostly college-educated, with annual income of $30,000 or more. The example we use is a single working person whose car just broke down or they have an unexpected bill they're looking to fund for four to six months.

Q: With whom do you compete, and what differentiates you?

A: Nonprofits in Texas make small-dollar loans at 8 percent interest, but you have to take at least three hours of financial counseling, so it's inconvenient. Some people need money now. There are lenders that serve only a specific ethnic market. We look to a broader market.

Q: What's next?

A: We'll be doing a pilot in Houston this summer to prove out the model. If we're successful, then we start raising a seed round of $700,000 to $1 million to finance the loan book and support the business.

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