The recent turmoil in the stock market and broader U.S. economy is a harbinger a recession, the average American’s finances and causing them to rely even more on the hundreds of billions of interpersonal loans made between family and friends every year. However, loaning friends and family money is complicated and risks straining and breaking relationships. Pigeon Loans, a consumer FinTech startup founded by Kaben Clauson and Brian Bristol, leverages technology to make lending to one’s loved ones a financially and emotionally seamless process. The Miami, Florida-based startup has raised $2.5 million from Y Combinator, FundersClub, Kleiner Perkins Scout Fund, Sovereign’s Capital, Goodwater Capital, SaxeCap, Pareto Holdings, True Culture Fund, Magic Fund, Legal Tech Fund, Mentors Fund, Ascendo Venture Capital, and various angel investors. Jahanzeb and Ashley Sherwani, angel investors in Pigeon Loans, say, “Pigeon Loans is the ideal use-case for technology: it empowers people to meaningfully help the people they care about, while providing accountability and trust to ensure everyone’s on the same page. By incentivizing people to stay on track with repayment, it creates a win-win for everyone involved, which is the kind of impact we wanted to be a part of.” "Predatory lenders target borrowers who seek small loans and are vulnerable to falling into the trap of high interest and fees. Pigeon Loans helps people avoid falling into the trap by enabling a borrower to get a loan from friends and family," said Ash Shrivastav, an early advisor and investor in Pigeon Loans. Frederick Daso: What are some of the psychological and interpersonal barriers that occur when lending friends or family money? Kaben Clauson and Brian Bristol: Friends and family lending has always been viewed with skepticism in the United States. The American ethos of self-reliance leaves many borrowers feeling embarrassed or shame that they have to ask for money. In other countries worldwide, a sense of shared community makes it easier for this type of lending to be commonplace. Many Americans’ ‘independent streak’ has left much of the $200B a year in the ‘friends and family loan’ market under the radar. The fear of loss with loans between friends and family can be quite high. We’ve talked to hundreds of lenders who have not been paid back on time or have seen their relationships deteriorate as money has driven a wedge. The truth of the matter is that interpersonal loans often ruin friendships without good planning. Both parties need a clear plan to repay to avoid ruining a friendship. Setting correct expectations seems to be the key to this working out. Daso: How dependent is the average American on borrowing money from family and friends? Clauson and Bristol: A recent feature in Bloomberg cited that nearly 27 million Americans relied on borrowing from friends and family in 2021. In 2020, the number was just under 20 million. These loans are expected to increase dramatically as record inflation and consumer debt starts to take their toll. The increase in friends and family loans has come disproportionately from minority communities, who often have less access to the traditional credit system. Daso: For interpersonal loans made under $1000, how does the loanee usually spend the money? On average, how fast is said money repaid to the lender? Clauson and Bristol: Loans under $1000 often fall into the ‘emergency’ category. These loans are often to repair someone’s car that they need to get to work or cover the costs of housing for a short time. With more Americans living paycheck to paycheck than ever before, we see many going to friends and family to get past a financial surprise. Daso: Beyond the financial organization and structure that Pigeon Loans provides the lender and loanee via technology, how is the product designed to address the psychological and interpersonal challenges in lending money to someone close in one’s life? Clauson and Bristol: As founders of Pigeon Loans, Brian and I have first-hand experience of the awkwardness of both borrowing and lending with those we know. https://www.forbes.com/sites/frederickdaso/2022/06/08/pigeon-loans-makes-it-easier-for-friends-and-family-to-loan-money-to-one-another/
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