When serial entrepreneur and GreenSky Credit founder David Zalik started talking about how he was going to create instant bridge financing for home remodeling projects at the retail level back in 2006, few believed he would be able to do so. But now, 13 years later, GreenSky Credit has surpassed most of its competitors in the fintech industry to become a $5 billion company that is doing nearly that same amount in new loans each year. Zalik’s vision is proving its staying power. And what many are now realizing for the first time is just how brilliant the whole concept was from the start.
Prime time versus crime time
While GreenSky competitors like OnDeck and Lending Club were trying to figure out how to make money on loans to felons and other assorted transients and derelicts, GreenSky was focusing on what was known for centuries to work. While one of the cries of the socialist is that capitalism only works for the already rich, it has long been an age-old maxim of banking that you don’t hand money to those with a proven track record of squandering it.
And this is the lesson that lies at the heart of the enormous success enjoyed by GreenSky Credit. From the beginning, the company focused on big-ticket home improvement projects. While this niche presented great opportunities for extending lots of loans, it also served as a filter. Because most people doing five- and six-figure home renovations live in nice homes and make good money, a couple of characteristics were automatically built into the company’s model.
First, high-end homeowners almost always benefit from well-executed renovation projects. This is because larger homes and those located in nicer neighborhoods can typically add more than the cost of these projects to the home’s value. This stands in contrast to smaller homes in rattier neighborhoods, where over-improving the property is not likely to net a positive return on investment.
The second built-in characteristic is that nearly all of these high-end homeowners are in the prime borrower category, with FICO scores in the 800-plus range. This is reflected in the fact that almost 100 percent of GreenSky loans have been paid back on time and in full.