Consolidation continues in the fintech space. The latest example brings two fintech pioneers in the small business lending space together: Camino Financial and Fundation.
First, a little background.
Camino Financial was founded in 2014 by the Salas brothers, Sean, who is CEO (listen to my podcast with him from 2020), and Kenny, who is COO. They are Mexican Americans who are on a mission to help Latino and other underserved entrepreneurs by offering them access to capital at a fair price.
Camino became a CDFI (Community Development Financial Institution) in 2021 calling themselves a neo-CDFI, meaning they are bringing AI-powered machine learning and data aggregation models to underserved businesses. The CDFI designation is important as we will come back to later.
As we said, Camino is focused on the underserved part of the market so as such their loan sizes are typically less than $50,000 with loan terms ranging from two to five years and no credit score is necessary.
Fundation’s background is a little more complicated. Founded by Sam Graziano (listen to my podcast with him from 2019) and Doug Gordon in 2011, in 2021 Fundation merged with ODX (OnDeck’s lending-as-a-service arm) to form Linear Financial Technologies. In early 2022 Amount acquired Linear Financial Technologies to become the leading lending-as-a-service player for the small business space.
Throughout these acquisitions, Fundation continued to originate loans funded by their bank and debt partners while the technology part of the business was kept separate, what is now inside Amount. They focused on loans up to $500,000 from one-year to five-year terms.
Both companies have been growing strongly coming out of the pandemic but in different segments of the market. Enter LL Funds and Community Investment Management (CIM) who were the architects of this deal. LL Funds was an equity investor in Camino and CIM has provided the debt financing to both Camino and Fundation for many years. Jacob Haar, the founder of CIM (podcast interviews are here and here) is also a pioneer in the fintech lending space and he knew both companies very well.
When I caught up with Jacob yesterday he was thrilled this combination has come together. The deal closed earlier this week and he worked closely with Shivraj Mundy and Putnam Coles of LL Funds to help make it a reality.
“CIM has been investing in these two fintech lenders for many years,” Jacob said. “I know both companies very well and have had a great relationship with Sean [Salas] and Sam [Graziano] dating back almost a decade. This deal makes sense and CIM is excited to support the combined business.”
The combined company will be led by a new CEO, Mickey Konson, the former CapitalOne executive and co-founder of another fintech SMB lender, StreetShares (sold to MeridianLink in 2022). Mickey has a deep knowledge and love for small business lending and when I caught up with him today I could hear the excitement in his voice.
He said that the conversations began at Fintech Nexus USA in New York City back in May when he chatted with Jacob about potentially getting involved in a new venture.
“I am so excited to undertake this new challenge”, Mickey said. “I have always loved small business lending and this combined company is positioned for success.”
He pointed out that in the first iteration of fintech small business lending capital was freely available at a very low cost. This next iteration is going to be very different. “This is why it is so important to have the support of strong capital providers like LL Funds and CIM.”
CIM won’t be the only source of lending capital, banks will also be part of the equation.
LL Funds has become a major force in fintech investing over the last few years with positions in Mission Lane, Offerpad, Renew Financial and Camino just to name a few. They led the deal and will be the financial sponsor of the combined company during this next phase of its growth.
The new company will offer loans from $5,000 to $500,000 and work with underserved businesses as well as more established companies. It will have one of the widest credit boxes in the industry.
With the CDFI-designation more banks could also be interested as it can help them meet their CRA requirements. They will be able to take advantage of the bank relationships that Fundation has already developed.
This is a challenging time for small business owners. With high interest rates and a potential recession on the horizon many banks have pulled back from lending once again. Combine that with the huge pandemic-fueled boost in business formation and you have a huge gap between the supply and demand of small business capital.
With a new leader, a wide credit box and capital providers with deep pockets the new Camino Financial is well-positioned to take advantage of this new era.
