Pigeon Loans makes it easier for friends and family to lend each other money
The recent turmoil in the stock market and the wider US economy is a harbinger of a recession, with the finances of the average American and forcing them to depend even more on the hundreds of billions in interpersonal loans made between family and friends every year. However, lending money to friends and family is complicated and risks straining and breaking relationships. Loans pigeons, a consumer FinTech startup founded by Kaben Clauson and Brian Bristol, is harnessing technology to make lending to loved ones a financially and emotionally transparent process. The Miami, Florida-based startup has raised $2.5 million from Y Combinator, FundersClub, Kleiner Perkins Scout Fund, Sovereign’s Capital, Goodwater Capital, SaxeCap, Pareto Holdings, True Culture Fund, Magic Fund, Legal Tech Fund , Mentors Fund, Ascendo Venture Capital, and various angel investors.
Jahanzeb and Ashley Sherwani, angel investors in Pigeon Loans, say, “Pigeon Loans is the perfect use case for technology: it empowers people to meaningfully help those they care about, while ensuring accountability and trust to make sure everyone is on the same page. By motivating people to stay on track with repayment, it creates a win-win situation for everyone involved, which is the kind of impact we wanted to be part of. »
“Predatory lenders target borrowers who are looking for small loans and are likely to fall into the trap of high interest and high fees. Pigeon Loans helps people avoid falling into the trap by enabling a borrower to secure a loan from friends and family,” said Ash Shrivastav, an early adviser and investor in Pigeon Loans.
Frederick Daso: What are some of the psychological and interpersonal barriers that arise when lending money to friends or family?
Kaben Clauson and Brian Bristol: Loans to friends and family have always been viewed with skepticism in the United States. The American philosophy of self-reliance leaves many borrowers embarrassed or ashamed of having to ask for money. In other countries around the world, a sense of shared community facilitates the commoditization of this type of loan. Many Americans’ “independence streak” has left much of the $200 billion a year in the “friends and family loans” market under the radar.
The fear of losing with friends and family loans can be quite high. We’ve spoken to hundreds of lenders who haven’t been repaid on time or have seen their relationships deteriorate because of the money. The truth is, interpersonal loans often ruin friendships without proper planning.
Both parties need a clear repayment plan to avoid ruining a friendship. Setting the correct expectations seems to be the key to this development.
Daso: How dependent is the average American on borrowing from family and friends?
Clauson and Bristol: A recent feature in Bloomberg cited that nearly 27 million Americans relied on borrowing from friends and family in 2021. In 2020, the number was just under 20 million. These loans are expected to increase significantly as record inflation and consumer debt begin to take their toll. The increase in loans to friends and family has come disproportionately from minority communities, which often have less access to the traditional credit system.
Daso: For person-to-person loans under $1,000, how does the lender usually spend the money? On average, how quickly is this money paid back to the lender?
Clauson and Bristol: Loans under $1,000 often fall into the “emergency” category. These loans are often used to repair someone’s car that they need to get to work or to cover housing costs for a short period of time. With more Americans living on paycheck than ever before, we see many turning to friends and family to weather a financial surprise.
Visiting friends and family is usually the best option for getting the money you need fast while avoiding payday lenders who charge high interest rates.
Daso: Beyond the financial organization and structure that Pigeon Loans provides to lender and lender via technology, how is the product designed to address the psychological and interpersonal challenges of lending money to a loved one in his life ?
Clauson and Bristol: As founders of Pigeon Loans, Brian and I have first-hand experience of the awkwardness of borrowing and lending with those we know.
First, our product starts by helping both parties understand how payments will be made and on what schedule. Proper planning helps solve most problems with these types of loans.
Second, the system then gently reminds borrowers to make payments on time, helping our lenders avoid the awkward monthly text of “hey, when will you send me that money?”
We also have a strong education center that guides lenders and borrowers through best practices for handling late payments and defaults and managing a healthy relationship. Having a third-party software system in place greatly reduces the embarrassment of these types of loans.
Daso: Beyond the complementary professional experiences of your co-founding team, what are your respective personal experiences in lending, and how have shaped what Pigeon Loans has become today
Clauson and Bristol: Kaben saw his family having to borrow a lot of money during the financial crisis of 2008. The pain of dealing with financial losses and then managing those loans for years always seemed to him to be a problem that needed to be solved. As he got older, he borrowed to launch my first startup. Without the willingness of my family and friends to help me, I would never have been able to pursue my business dreams.
During the pandemic, Brian was asked by his family for a large sum of money. He wanted to help, but he didn’t want the headache of managing that loan over the years. He needed a solution to make these loans as automated as possible and started building Pigeon Loans V1.
Daso: What is an aspect of your startup’s history that many people do not yet know?
Clauson and Bristol: Many are unaware that Pigeon Loans has recently changed its business model to make our lending tool completely fee-free. We believe that the economic difficulties that many of our users are experiencing should not be increased in the form of fees. The best way to monetize the tool we’ve built is to give our clients referrals to other fintech products and services that can help them further their financial journey. This business model allows us to serve the greatest number of users in a way that promotes a better financial future for them and their families.