While completing a Bachelor of Science in Interpersonal Communication and Broadcasting, Kellen Jones began making mortgage loans as a licensed loan officer. Although he was still a student, this marked the beginning of a storied career in finance and lending.

In his current position as the president of Cache Private Capital, Jones still utilizes the skills he learned in college – just on a much larger scale, of course. Jones’ company is at the forefront of building a wide array of tools for investors with the hope of changing their views on not only investing but the investment landscape as well.

Kellen is also the CEO and co-founder of Funding Database, a resource for anyone looking to fund a project or business. Since its inception in 2011, Funding Database has grown to become a sounding board for millions of dollars’ worth of loan submissions per week, and a database of hundreds of funding sources. Jones was a perfect fit for this issue of Originate Report and spoke with us last week about his company, technology, and the future of the private lending sphere.

Originate Report (OR:) Can you start by talking a little bit about Funding Database’s background, and what really brought that idea into fruition?

Kellen Jones (KJ:) I like to say that we were the first private lending marketplace before marketplace lending was a thing. When the Jobs Act passed in 2014, that made it possible for crowdfunding platforms and peer-to-peer platforms to raise money and make loans by way of the crowd. Prior to that, it was challenging to find the right home for prospective loans – we manage a fund (two funds now, but back then it was just one fund,) and the whole time it became very apparent that deal flow is really the lifeblood to private lending, and the quality of the deal flow and your burn rate really defines how successful and profitable your organization will be. I realize that you can make a private loan and make
a profit, but you can make good private loans and make a business. Everyone has a problem finding relevant deal flow. I recognized very early that it’s not about getting deals in hoards, it’s about getting down to the good deals that are relevant to the type of capital you provide.

So we said let’s take all of this deal flow we’re getting and instead of picking the one or two deals a month that are worth underwriting for our organization, let’s start sending excess deals to other lenders. Although that sounds like a glorified term for brokering deals, I like to believe that we have more sophistication behind it. We started collecting borrower and collateral data along with the deal that we could provide to lenders as soon as a loan is submitted. Our software organizes raw data into a beautiful loan package with a lot more data than the clerical stuff the borrower submits.

In addition to aligning the right capital to the right loans, we also realized that lenders spend a lot of time on deals that they’ll never do, and they don’t spend enough time on the most fruitful deals. As technology became available to lenders, it seemed like the critical human element of underwriting began to go by the wayside. It seemed like, for a while at least, data took over to the point where we decided to create a way for human involvement to be spent on the most appropriate human tasks that you probably shouldn’t trust to a computer. We decided to harness data and technology to allow people to perform the higher level fiduciary tasks of loan origination, underwriting, and servicing.

OR: Can you expand on the role humans play in your line of work versus the rise in technology the field has been experiencing?

KJ: This is kind of a high horse of mine because it’s where I think a lot of private lending shops fail and we’re more prone to that failure in today’s market than we’ve ever been before because of the rise of technology. As a technology guy, I want to make it clear that I’m not anti-technology and I do think harnessed the right way, we believe in everything it stands for and everything it does. But in private lending, you are only as strong as your loan quality. The only way to get to the bottom of loan quality is to analyze the data correctly. Just because Watson, IBM’s supercomputer, can win Jeopardy, doesn’t mean that technology can replace humans in every circumstance.

Through AI and machine learning you can really understand data very quickly, maybe more quickly than a human could. But lending is about instinct. Most players in our space haven’t had the opportunity to experience a maturing portfolio or the many dynamics that accompany sub-credit types of situations that so often get funded with private lending – and it’s often too late by the time the technology teaches you what you need to know. What we’ve tried to do is harness the roles within the origination and underwriting process that absolutely need a human to see them through. But there’s no reason a human should have to go through a checklist every time they do something and click a box or write on a whiteboard. So many functions can be automated.

I fear that there are so many folks who have only worked in private lending since technology and data have become the key components of origination and underwriting. We haven’t even seen the inevitable correction in our industry related to the lack of human involvement. Our technology certainly addresses that, but the bottom line is: once you take a human entirely out of the origination process there needs to be some level of credit-related experience reviewing that deal before you price and fund a loan. It’s a double-edged sword because I’m a proponent of technology and I don’t want there to be any limits to it, but it can also be a major deterrent to a successfully performing portfolio if we get lazy and remove the human from that process.

OR: Kind of jumping off of that, in the loan origination field it seems like it’s going through a transition period where technology is becoming more and more prevalent – in five years where do you think the industry will be in terms of the role technology plays with people?

KJ: I think that technology will allow more investors to access our asset class than ever before, and we’ve seen that rise exponentially over the past few years. That’s not a bad thing because more investors realize that private capital in real estate is often more secure because there is a tangible asset backing these investments that isn’t typical in traditional investments they have trusted for decades. The yield is higher because the perceived risk is higher, but I would argue the risk is lower because of that underlying value. The other thing that technology, particularly in private lending, is doing to the finance industry is putting pressure on banks and causing traditional banks and lenders to rethink their business model. Simply put, since the access to capital has gotten easier for private lenders and since that allows private lenders to offer rates that are just slightly above what a borrower could get if they walked into a bank, of course, borrowers regardless of age are going to start online, and they’re going to search for what they’re looking for. Our goal is to have them channel through our organization.

If a borrower’s mentality is “hey, I could walk into a bank and apply for a loan on a relationship, and if I have immaculate credit and perfect ratios on my loan I could get debt at 5 or 6 percent,” or “I can search online and get a better loan for my project, with a faster approval and funding at a little higher interest rate,” borrowers are going to avoid the bank. That is an absolute pressure point that banks are going to have to start saying “Wow, we’ve got competition because our rates aren’t good enough to incentivize borrowers to walk through that door.” I think there’s going to come a time where that pressure gets so immense that banks will start taking a page out of the private lending industry’s book and start offering a more sub-credit type of product. Although there are regulations that have to change in order for that to happen, that may have to happen to keep banks, at least from a lending perspective, viable. We hope our technology can help banks understand how to do things like private lenders do.

OR: So what makes your technology more innovative or different from what’s offered in the private lending sphere?

KJ: The most significant difference is: we built our software for ourselves first. We know the little pain points that our staff experiences every single day, and the pain points that require the private lenders to charger higher rates because they have larger staffs and riskier loans. We developed our software to be the most relevant offering from an enterprise perspective for any lending organization. We’ve developed solutions for the day-today challenges lenders and investor managers that originate, underwrite and service loans and private offerings experience.

It’s all in there because those are all things we had to deal with in order to get off of spreadsheets, whiteboards, and word processors and into an environment where everyone is maximally productive because the system is doing what he or she has no business doing. That’s the biggest thing that sets us apart. I’d say in addition to that, regardless of how borrowers or brokers apply for loans, we’ve created a platform that arms folks with the ability to monetize their deal flow, organize that data, review it in a clearer way, and give it the best shot of getting it funded.

We’re lenders first, and we’ve developed for lenders because we know what it’s like to be one, and all of the functions throughout both of our platforms are enabling professionals not just to act the part but to thrive in their businesses.

OR: I know you mentioned before that your company is going to be going through a significant re-branding in February 2019, would you elaborate on the changes that will be?

KJ: I will. I’ve explained how we’ve recognized this need because of our use of other products and through feedback from our peers, which is 100’s of lenders. We started comparing what we have to other platforms that started in the software space as a solution to lenders. We kind of fell into the software space because we developed what we needed, organized in the way we wanted it to look. As we started showing it to our peers, all of the sudden they started saying “we’ve used X and Y software for years,” I started realizing “Oh my goodness, if we peel this back to minimum viable product for the masses, this is not just a product for me, this is kind of altruistically addressing all of these pain points my peers
are saying they experience.”

Additionally, we welcomed Sean Clark as a partner in 2017 for several qualities. In part, he had just come off a 5-year stint at a major fintech company he co-founded. We knew he could help us develop what we had for the masses and run as a true software company. He adds to an existing and growing group of amazing, smart people.

We are going to start monetizing the platforms, but also use them as a tool to change our industry, and eventually percolate the traditional credit space because they have a lot to learn from how private lenders make credit decisions. The last year and a half, although we have exhibited at a few events, we haven’t gone full-tilt on marketing. We wanted to reverse-engineer back to a point where the software is relevant to most organizations. We feel like we’re finally there, able to offer these tools in a way where people have the ability to customize the experience more than rigid old options or new inexperienced options. Beyond the answers I gave on what sets us apart, the reason we’ve waited so long to monetize this and market it to other lenders is because we listened. We heard that lenders valued what we had. We decided to officially launch in 2019 under the name by which we will be known and separate our lending and technology arms. We also decided to do something no one else is doing, and take the foundation of our platform and illustrate what functions are available – every organization has an entirely different way of doing what they’re doing, and most are plagued by this process of ‘trying everything there is and fill in the blanks to address our needs.’

This time around, as we officially launch, I think what people will be really happy with is unlike several other platforms, we’re offering what is the very best for our industry and also have on-staff development where the onboarding process is a collaborative one. As our users learn features, they have the ability to create functions and customize the platforms to their needs. So, I’m really excited, because up until now we developed for ourselves, then we allowed some of our peers to use it, and finally we’re going to blast off in a way that says ‘We provide a foundation and all the tools you need to be your best.’