Noah, a company that offers financing in exchange for a portion of consumers’ home equity, gives consumers an alternative to home equity loans from banks. With a $150 million funding round from undisclosed institutional investors, up from a $5 million Series A just seven months ago, there appears to be faith in the company’s business model.  

“How do you identify, assess and manage risk?” said Sahil Gupta, founder of Noah. “That is the biggest differentiator between us and an operational lender. They are simply looking at your FICO score.” 

The San Francisco-based Noah was founded four years ago and targets consumers who are asset-rich but cash-flow sensitive, now a growing market as large swathes of the population lose income amid the COVID-19 crisis. Noah rebranded from Patch Homes last month, and the company is pitching up-front cash with no monthly payments to reach consumers in need of cash for near-term expenses.  

Noah provides the cash in exchange for a percentage of home equity that varies depending on the customer. When a customer sells or refinances their home, they pay Noah back the principal amount, plus or minus Noah’s share of its appreciation or depreciation. According to an example from Noah’s website, if a customer owns a home worth $900,000 and requests $100,000, then sells or refinances it in 10 years for $1,344,000, Noah would keep $230,000 of the $444,000 profit. Essentially, Noah makes $230,000 from the homeowner’s equity on a $100,000 loan over the 10-year period. 

Although the repayment looks expensive, Gupta pointed out that the total amount spread over 10 years makes the APR equivalent to other forms of debt. Plus, some consumers might not have other options to secure that much cash up front with no monthly payments, according to Gupta. Customers may borrow between $30,000 and $350,000. 

Noah could see a spike during an extended recession, when consumers need cash and banks shy away from Noah’s line of business. Just last week, for example, JPMorgan Chase announced it would stop accepting new applications for home equity lines of credit. 

Noah’s financing terms depend on dozens of factors, including a property’s school district and neighborhood crime rates, as well as the customer’s cash flow data from the previous two years. A customer inputs their home’s address, value, mortgage balance along with their financial profile. They choose how much they would like to borrow and how much of their home equity they are willing to give up, and Noah provides the terms within about 90 seconds, according to Gupta.  

Consumers in California, Washington state, Colorado, Oregon and Utah can use Noah. They must own at least 25% equity in the property and have a credit score of at least 625, according to the company’s website. 

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Noah’s $150 million round comes just seven months after the company’s $5 million Series A from Union Square Ventures. Gupta said the money will go to funding more loans on its platform. Although he said the funding round has been in the works for some time, the pandemic and resulting recession could make Noah a worthwhile option for many consumers. 

“[Consumers] are feeling a higher level of financial stress and anxiety, and they are worried about their liquidity,” Gupta said. “If big institutions and lenders are pulling back, you need somebody else to step up and fill that gap. Noah believes and hopes we are the company to fill that gap.”