ThunderRoad Financial has signed on with Cadence, a digital securitization and investment platform, to grow it’s capital and fund more originations, the two companies announced.
Cadence, which launched its platform in January, will fund unseasoned loans for non-bank lenders for a maximum of one year. During that time, Cadence will issue multiple notes for a certain amount of money to the lender.
In ThunderRoad’s case, Cadence will issue a note ever three months for between $1.5 million and $3 million, Prath Reddy, head of capital markets at Cadence, told Powersports Finance. Cadence will advertise the note to investors signed up on its platform, giving them the opportunity to invest in an outstanding loan with 9% to 10% yield.
By providing capital for unseasoned loans and connecting ThunderRoad with investors, Cadence fills a gap in the lender’s business, helping to ease the burden on funding loans until it fits the credit criteria of investors.
“When ThunderRoad originates loans, the way that they’re able to continue to finance their business is that it sells those loans to a third party,” Reddy explained. “These banks and hedge funds require these loans to have some time under their belt before they can purchase them. [Until then], the loans are sitting with ThunderRoad, where they initially were financing using equity or high-cost sources of capital. That is very inefficient.”
Under the new agreement, Cadence finances the loan “as soon as it’s originated, holding onto them until they get seasoned,” Reddy explained. “At that point, the long-term investor [will take it from us] for the full five-, six- or seven-year term.”
New York-based Cadence works with multiple types of finance companies, such as lenders who finance e-commerce merchants or software developers, but ThunderRoad is its first powersports lender. The technology company wanted to work with the lender due to the experience of its management team and its underwriting criteria.
“We got very comfortable working with them because we were able to look at the historical performance of their loan portfolio and see that they’ve had very low default rates and very low loss rates because they’re doing everything right on the origination side,” Reddy said. “We feel that the level of risk associated with this unseasoned period is extremely low. ThunderRoad is a perfect candidate for what we’re looking to do in terms of these short-term notes that we’re offering to investors.”
The first note for ThunderRoad will be released in November for $2 million, Reddy noted.
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