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This fintech startup is targeting a gap in lending as banks tighten credit


With banks facing higher interest rates that bite into economic activity, not to mention their need to stockpile money for bad debts or unpaid credit-card bills, it has been harder to get a loan in the past year or so.

At least one startup sees an opportunity.

The founders of financial-technology company Nectar told MarketWatch this year’s market conditions are fueling its growth at a time when banks remain more selective with their loans.

“It’s a good time to be in this business because access to capital has dried up,” said Derrick Barker, 36, who co-founded Nectar with his wife, Brittany Mosely, 35.

Also read: New York Community Bancorp led increase in loan-loss reserves by big regional banks as lenders brace for potential downturn

With 92 loan deals and counting since its launch in 2021, Nectar now employs 12 people as a lender to real-estate investors and owners who often build housing for Black Americans and other people of color.

It’s worked on more than $500 million in transactions including apartments, multi-family buildings, single-family rentals, hospitality properties, assisted living facilities and commercial real estate.

Nectar’s success thus far illustrates the alternative ways capital is being provided to individuals and businesses even as banks grow more conservative.

The growth of private credit has pivoted to meet some of this demand, but fintechs such as Nectar are also ramping up.

To be sure, others offer quicker routes to capital than many banks. Capchase Inc., for example, specializes in loans based on annual recurring revenue for software-as-a-service companies in the business-to-business space.

Pipe Technologies Inc. operates a trading platform to connect institutional investors and companies with recurring revenue streams to get financing for growth.

For its part, Nectar saw revenue growth of 750% between 2022 and 2023 by focusing on an underserved part of the market, namely people with $50 million to $500 million in assets, typically in real estate.

“The supply chain for capital is … old, outdated and broken, specifically for people who aren’t large institutions,” Barker told MarketWatch. “We want to fix that. We can provide to those people who are medium-size and smaller who are making an impact with the capital they need, so they can build the housing that needs to be built.”

Nectar’s mezzanine debt deals focus on transactions of less than $5 million, much smaller than the $20 million cutoff from many major banks. The company uses existing assets and cash flow generated by rent and other payments as collateral for the loan. This structure allows real-estate owners to retain more of the equity in their own property than other types of financing.

“We can come in and look at their stabilized cash flow and their properties so they can keep doing the important work that they’re doing, which is creating affordable housing … across the country,” Barker said.

Barker and Mosely met while studying at Harvard University, got married in 2015 and went into different careers. She headed for the retail sector, while Barker worked as a bond trader for Goldman Sachs Group Inc.

During and after his time at Goldman Sachs, Barker built up his own $450 million real-estate portfolio by buying abandoned apartments and rehabilitating them.

Barker started working to solve the challenge of coming up with working capital and liquidity for real-estate properties with low leverage and positive cash flow, which is the core business of Nectar.

For her part, Mosely had seen property owners giving up equity to investors — the limited partners, or LPs, in a real-estate private-equity fund — to get capital.

“For me, it was about really being on the front lines and doing all the work that it took to acquire the property and actually manage the construction or the rehab and when it came time to sell, the LPs would take most of the profit,” Mosely said. “I felt there had to be a better way to grow without property owners having to give up equity — that was my drive to co-found Nectar.”

Many of Nectar’s lending deals are sub-institutional, and many of them are for housing.

These so-called Class C properties — defined as 30 years old, in fair to poor condition, and in less-desirable locations compared with Class A or Class B buildings — often house a greater proportion of Black Americans and people of color.

“They’re still the places where Black people live. If you look at the Class C apartments, they’re the apartments that more people of color are more likely to live in,” Barker said. “They’re also more likely to be ownedby smaller institutions with less access to [loans]. By providing access to capital, it helps … people who are creating housing for this part of the population.”

Nectar remains well capitalized after lining up venture-capital backing from RareBreed Ventures, J4 Ventures and Asymmetry Ventures. Nectar is also raising a private-equity real-estate fund to generate capital for deals called Nectar Fund 2, which has a $100 million target.

Nectar is able to approve financing in as little as seven days, once all underwriting due diligence has been handed in.

Nowadays, Nectar’s portfolio has a combined leverage below 60%. The company maintains more than 2x coverage for every $1 that’s borrowed.

“We do some detailed and deep underwriting. We get to focus on the cream of the crop,” Barker said. “Just because the loans are smaller doesn’t mean they’re not good.”

Also read: Why small-business loans are a win-win for women-run startups and smaller banks

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