As a blogger/analyst/entrepreneur, it’s a mixed blessing when someone delivers on a market need you’ve been ranting about (here and here). You feel vindicated and you have a blog post that writes itself, but it knocks one thing off the top of your businesses-to-start list.
So begrudgingly, I introduce you to The Guarantors, an N.Y.C.-based startup that is stepping up to meet the needs of renters trying to qualify for an apartment in New York City, and eventually other markets such as Boston, Chicago and California. I was directly involved in one such qualification excercise two months ago.
The company essentially acts as your parent (if your parents could fill out reams of paperwork within 12 hours, were extremely well heeled and backed by surety bonds), stepping in to co-sign and guarantee your rental agreement. To make landlords trust the stand-in parent arrangement, the startup backstops its guarantees with insurance from The Hanover Insurance Company. If the renter does not fulfill the terms of the lease, The Guarantors, makes the landlords whole. It is a brilliant idea, and perfect for financial institutions to license or build themselves.
The only problem is cost. Depending on risk profiles, The Guarantor charges U.S. citizens 5% to 7% and international renters 7% to 10% of the annual rent, about 3 to 4 weeks’ rent to backstop a 12-month lease; leases up to 18 months are a higher rate). But by eliminating deposits that can equal that amount or more, it can be cash-flow-positive to the renter. Though, unlike a deposit, that money is gone for good. So it doesn’t help first-time renters without the initial cash surplus of two-month’s rent. However, a financial institution offering the service could loan the renter all or part of that. There is no cost to the landlord.
The company, currently operating in NYC, is open only to renters with a 630 or higher FICO score and annual income at least 27x the rent. Alternatively, the company allows co-signers with at least 45x the monthly income, or liquid assets of 75x the monthly rent, to guarantee the guarantee. Applications are approved with 12 hours.
The company launched in 2014 and spent 18 months nailing down the insurance deal with Hanover. It has taken a seed investment of an undisclosed amount from nine investors (50 Partners, Alven Capital, Arnaud Achour, Fides+Ratio, Kima Ventures, Partech Ventures, Residence Ventures, Silvertech Ventures and White Star Capital).
Bottom line: Renter financing/assistance is a promising new lending/customer service for financial institutions. You not only get new customers, new loans, new checking accounts, a foothold in the millennial market, a unique service to offer employers, satisfied renters (and their parents), but also become a local hero with write-ups in every newspaper, blog, and housing forum in your market. And, with a phone call or two, you will be on the nightly TV news every fall when it’s “apartment hunting” season.
Contact The Guarantors now and offer to be their first distribution partner outside New York City, or their first strategic investor. And if you are Wells Fargo, Capital One, American Express, or Chase, just buy them outright already.
Have a fantastic weekend all!