In a Nutshell: A low credit score, lack of cash flow, or shortage of collateral can stand in the way of a small obtaining a loan from a traditional lender. But Unchained Capital allows borrowers to receive loans by leveraging Ethereum and Bitcoin cryptocurrencies as collateral. The lender’s fast application process can provide businesses with funding in as little as a few hours, while multisignature protocols ensure the security of their assets. Unchained Capital gives entrepreneurs peace of mind while allowing them to leverage cryptocurrency to access working capital without sacrificing future value.
Securing a loan if you’re a small business is hard. Business loan approval rates for big banks and other institutional lenders grew in December 2017 to 25.2% and 64.3%, respectively. But small business loans constitute less than 30% of overall bank loans due to high transaction costs and regulations requiring banks to hold more capital against them, according to Fundera, an online loan broker for small businesses.
Common reasons a small business might be denied a loan include a low credit score, insufficient cash flow, or inadequate collateral to secure the loan.
Unchained Capital presents an alternative to those traditional loans, which are typically approved and denied based on those three factors. Instead, Unchained Capital allows borrowers to leverage Bitcoin and Ethereum cryptocurrencies to secure a loan — which is often preferable to selling cryptocurrency in exchange for fiat currency to use as working capital.
This option is particularly appealing for borrowers who hold cryptocurrency but lack the necessary prerequisites to qualify for financing from a traditional lending source.
“We don’t discriminate on credit score,” said Joe Kelly, Co-Founder and CEO of Unchained Capital. “If you have the assets, we’ll extend a loan to you.”
Unchained Capital offers funds with terms ranging from three to 60 months and minimum values of $10,000 for domestic loans and $100,000 for international loans. Rates vary by location, amount, and other variables, but typically fall between 7.25% and 13%. Borrowers must supply collateral at 50% of the loan-to-value ratio. And this loan model works so well, Unchained Capital doesn’t even need to perform hard credit checks.
“If you have a credit score around 600, you may get loan quotes at around 14%. But if you secure with Bitcoin, you can get a 10% loan with us,” Kelly said. “If you’re not in the top-tier credit cadre, you may find our loans more appealing than other types of credit.”
A Fast and Safe Process from Application through Maturity
Unchained Capital loans help businesses take advantage of cryptocurrency’s value without having to sell it and lose their investment. And thanks to a fast application process, customers can get funding the same day they apply.
“We’ve had people come in at 10 a.m., create a profile, and submit a loan application in about 30 minutes. Once we have that, we can approve it, and they can sign their documents by noon,” Kelly said. “With the documents signed, if they make their cryptocurrency show up in the collateral account within the hour, then we’ll wire the money by 2 p.m., and they’ll get it that same day.”
This streamlined application process is one of the features that makes Unchained Capital stand out among lenders. Just as significant is that it offers borrowers the opportunity to maintain self-custody of their assets.
Unchained Capital’s multisignature access allows borrowers to participate in the security of their loan and enjoy a financial experience that is transparent and non-intrusive. That is necessary because borrowers often prefer not to surrender assets to a third-party custodian, have reservations about security, or simply prefer to maintain control over their own assets.
“We don’t have to ask them to pull up financials, give us projections, or drill them on use of funds. We like to know what the loan purpose is, but we’re not looking for a cap-rates model on the real estate they’re buying or a business plan,” Kelly said. “Most of the information we gather is about knowing our customer and ensuring that we know the funds aren’t going to any illegal activities. At that point, as long as they provide the collateral, we’re good to go.”
Multisignature Access Ensures Security of Collateral
Vaults with multisignature authentication leverage three of cryptocurrency’s strengths: security, transparency, and accountability. They also prevent loss of access to collateral or loss of assets due to outages, bankruptcy, or hacks, among other problems.
Unchained Capital’s multi-institutional model is tailored to meet the needs of business borrowers. The private key required to access their funds is stored in three places. The user controls one key. Unchained Capital — which acts as the cosigner — possess another key. And finally, third-party partner Citadel SPV holds the third key as a backup if either of the other two keys is lost or compromised.
All transactions require two of these three parties to sign using the private key. This measure creates safeguards through the redundancy and precludes the possibility that any single key holder can be a point of failure or a threat to the collateral’s security. Finally, if Unchained Capital finds itself in a situation where it cannot return the borrower’s collateral, the customer can retrieve it with the assistance of Citadel SPV.
Each instance of the private key is in an offline hardware wallet manufactured by either Ledger or Trezor. These wallets are USB compatible and designed to store private keys safely. When customers create an account with Unchained, they can link their loan information to their device. These hardware wallets keep the private key in “cold storage” or disconnected from the internet. The devices can’t be hacked if would-be thieves cannot access them.
“No longer is just one device the place where all data lives. If it gets stolen, you’re not compromised, and you haven’t lost it,” Kelly said.
Other Digital and Physical Safeguards Provide Borrowers Peace of Mind
In addition to maintaining private keys offline, Unchained capital supplements security with additional physical, operational, and technological measures.
Each customer gets a unique P2SH address, upon which the lender’s multisignature security is based. Unchained Capital stores customer collateral on hierarchical deterministic (HD) wallets, which automatically generate public and private keys for each transaction. As noted, these wallets are cold stored, ensuring the safety of customers’ cryptocurrency.
Wallet seeds, which are used to generate public and private keys for wallets, are stored in locations separate from the hardware wallets themselves, both of which are also separate from Unchained Capital’s corporate offices. Wallet storage facilities are physically secure locations that require identity verification to access, and all of Unchained Capital personnel are trained to follow the company’s strict security policy.
Internally, the company uses a private, firewalled network that employs industry-standard encryption to transmit sensitive information. Two-factor authentication — in which an individual must provide two pieces of identity verification — is required to access sensitive resources, all system traffic is aggressively monitored, and network logs are stored indefinitely for reference.
Before cosigning, customers can request the identity and intent of a verifiable transaction. Customers also have the option of recording a video as verification of their identity. Unchained Capital will use this video to validate any transaction signing requests or two-factor authentication resets. Other client options include the ability to set transaction amount thresholds. When these thresholds are met, Unchained Capital actively verifies the customer’s identity and transaction intent.
A New Approach to Financing in the Digital Age
Cryptocurrency-backed loans present an alternative funding method for businesses that may lack a high credit score or sufficient cash flow to obtain a loan through traditional means. Unchained Capital allows its customers to retain ownership of their cryptoassets, thereby maintaining the integrity of their long-term investment in Bitcoin or Ethereum. And in the future, such an investment could prove increasingly fruitful.
“Bitcoin is a new form of money, in many ways. It’s one of the world’s first truly scarce, limited assets that we can’t create more of than is programmed to be created,” Kelly said.
Bitcoin is capped at 21 million units, and once that number of coins enters circulation, no more is generated. The number of new coins produced is reduced at regular intervals, gradually creating scarcity and guarding against inflation through increased production of the cryptocurrency. This is a safeguard that fiat currencies lack.
“Those in charge of fiat currency — central banks — are much more profligate with printing more currency as necessary to cover spending and liability mismatches,” Kelly said. “I think that just drives more inflated fiat — whereas this is currently not possible with Bitcoin.”
Kelly foresees growing utility and acceptance of Bitcoin despite concerns around the fact that cryptocurrency is unregulated and therefore potentially highly volatile. In particular, cryptocurrencies like Bitcoin are internet-native, and economic activity is increasingly gravitating to the digital domain. As it does, people become more comfortable with virtual currency.
“Demographically, more millennials accept it and treat it as something real. It’s positioned well as an alternative to a traditional system,” Kelly said.