ZestCash Closes $73 Million in Funding

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ZestCash, a startup that aims to disrupt the "payday" loans market with new search and data analysis techniques for underwriting loans, has closed a US$73 million round of funding.

ZestCash raised $23 million in an equity round led by Matrix Partners, and a separate $50 million line of debt financing from Victory Park Capital, the company plans to announce on Thursday. It's ZestCash's second funding round.

Traditional "payday" lenders offer small, short-term loans to borrowers who are known as underbanked, because they can't get loans from banks and other conventional lending institutions due to bad credit or low cash reserves. ZestCash is going after these borrowers by offering loans that it says are less costly and more convenient.

According to the company, it can lower costs and offer better terms because its underwriting process is sharper, due to a proprietary system that lets it do deeper and broader collection and analysis of applicants' credit-related data. That way, it has a better view of the default risk for each applicant than the average "payday" lender, said ZestCash CEO Douglas Merrill. The company also operates entirely online.

ZestCash plans to use the new funding to grow its business, including hiring more engineers and expanding its operations to new U.S. states, while the line of debt will beef up its lending capacity, Merrill said.

"We're ready to put the foot on the gas," he said. The company has about 75 employees.

ZestCash lends money to customers in Utah, Idaho, South Dakota and Missouri, and plans to expand in the coming months to other states that Merrill declined to name because the plans are still being worked on.

While payday loans must typically be paid back within two weeks, ZestCash lends money for a longer term, usually between three months and eight months, and it is flexible with late payments. Loans can cost borrowers half as much as a typical payday loan from another vendor, according to the company, but it still charges very high interest rates -- 180 percent on average, up to a maximum of 300 percent.

ZestCash expects to exceed the 10,000 customer mark this quarter. It has lent several millions of dollars so far. About two-thirds of its customers have come back to do business with ZestCash again, according to Merrill.

Juan Carlos Perez covers search, social media, online advertising, e-commerce, web application development, enterprise cloud collaboration suites and general technology breaking news for The IDG News Service. Follow Juan on Twitter at @JuanCPerezIDG.

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