Divvy, the fintech startup that helps small businesses manage expenses, is expanding into the lending market by launching Divvy Capital, a new feature that allows businesses to float bills for short periods of time to access cash .
Similar to Stripe Capital, small business customers upload an invoice and Divvy Capital pays it for them. The business owner has 30, 60 or 90 days to reimburse Divvy. Interest charged on loans starts at 0.9% for 30-day loans, 1.4% for 60-day floats, and 1.9% for those repaying them in 90 days. Divvy said that if customer payments and fees were annualized, it would come down to APR starting at 10.8% for the 30-day plan and 11.4% for the 90-day option.
“We are launching Divvy Capital to give businesses access to the funds they need when they need them,” said Tyler Hogge, vice president of products at Divvy in a press release. “For example, Flex Plans for Bill Pay gives companies the flexibility to pay their suppliers on time.”
Divvy is among the fintechs tackling the small business market, offering expense management, credit cards and increasingly loans. Divvy doesn’t provide business loans like BlueVine, but to mitigate the risk, it ties it to the finances of its small business customers. “We’ve already signed them up and now we know how well they pay their bills over 18 to 24 months,” Hogge said. Since Divvy users are pre-approved, it can provide instant access to capital, eliminating what can be a cumbersome approval process.
Although Divvy Capital’s offering is similar to what Stripe and Square already offer, Divvy does not consider them to be direct competitors. These companies prey on small businesses that need loans of $5,000 to $10,000. “Our average customer is much bigger,” said Blake Murray, co-founder and CEO of Divvy. Divvy is also proactive with its lending tool. He finds eligible customers and contacts them. The fintech uses multiple data points collected within the platform, including payment history, revenue growth, and other business signals to determine if a customer is eligible for funding.
With small businesses closed to traditional lending for so long, these lending services resonate. Look at PayPal for an example. At the end of May, he announced a new milestone: providing around $10 billion in loans to more than 225,000 small businesses worldwide. It took PayPal twenty-three months to secure the first $1 billion in loans and now it lends more than $1 billion per quarter. Meanwhile, in November, BlueVine, the small business funding startup, raised $102.5 million in a Series F funding round. To date, it has awarded $2.5 billion in loans to 20,000 small businesses. Then there’s Kabbage, the billion-plus small business lender. It made the Forbes Fintech 50 2019 list.
Divvy is also no stranger to venture fundraising. It raised $245.5 million in three rounds in 2019. Its valuation has more than tripled since July, when sources said it was worth between $150 million and $200 million. Launching Divvy Capital was a direct response to what customers were asking for, and as a result, the startup is confident it will be used by its customer base. “We never want to be a lender,” Murray said. “Our fundamental vision is to help businesses spend smarter. We provide additional sources of capital as a tangible part of the business.