Can this startup profit from interest-free loans?

Hello there,

Here at PreSeed Now, we write about startups at an earlier stage than most of the media, but there is still such as thing as too early stage.

An idea in a deck with nothing else to underpin it would be too early, for example. And I’ve knocked back startups who have told me they don’t yet have a CTO, as it simply wasn’t clear they’d be able to move forward without one.

Beyond that, I want the selection of startups to inform you and inspire you about the diversity of what’s happening across the UK. And I want us to do that by covering startups at all stages of ‘early’. I hope we’re delivering on that.

You can always drop me a line if you have any thoughts.

The cost of living crisis has led some entrepreneurs to apply fresh thinking to help those in need with promising-looking businesses.

Last week we covered Tickets for Good, and today let’s take a look at ZeroPA and its big idea of offering interest-free loans AND making a profit.

– Martin

ZeroPA wants to make a profit from lending money interest free

Out on the Isle of Man, a UK startup is testing a hypothesis: that you can offer zero-interest loans to help people on low incomes pay for essential goods and services, and build a successful, scalable business around it.

ZeroPA offers loans of between £50 and £1,000 for up to a year on an interest-free basis. These loans are offered as vouchers rather than cash, and can be spent on things like food, utilities, clothing, white goods, furniture, household repairs, and basic tech.

Funds for the loans are sourced from altruistic lenders via a peer-to-peer model that–despite the lack of interest payments–is designed to return a profit to lenders, the startup, and its investors.

Founder and CEO Saqhib Ali, says that ZeroPA (a reference to ‘zero per annum’ but pronounced a bit like the U2 album ‘Zooropa’) aims to have relationships with a range of retailers, and get a cut of the purchase price for generating the purchase.

Bedford-based Ali says borrowers need to be referred from an organisation like a credit union, foodbank, or Citizens Advice, to ensure they’re really in need of this kind of loan. The application process happens through the ZeroPA website, with successful applicants then having to wait up to five days for the retailer to be paid, and the goods to be available.

Meanwhile, risk to lenders is mitigated by the startup spreading funds from individual lenders across multiple loans.

Ali says the aim is to automate the whole process over time, but there is some human intervention at present, behind the scenes of a self-service process.

But is it a business?

Lending to those on low incomes can be a lucrative, if often morally dubious, pursuit. By taking interest out of the equation, ZeroPA’s offering is likely to be compelling for those who find themselves having to take out a loan for essentials, but is there a business here?