Let’s say that you’re running a lease-to-own financing program for purchasers of pet dogs.
How do you calculate the residual value of five-year-old used English bulldog at the end of the lease?
The guys over at the South Meadows office of Wags LLC have built a fast-growing business — a really fast-growing business — on precisely those sorts of calculations.
Launched barely more than six months ago, the company expects to double its current employment of 15 by the end of the year. And it’s already expanding beyond its base — financing consumers’ purchases of pets — to finance home furnishing and electronics as well.
The founders of Wags LLC — Sam Paul, Brian Davis and Dusty Wunderlich — think they’ve spotted an opportunity to use technology to upend the traditionally slow-moving, paperwork-intensive business of consumer finance.
The opportunity is all the greater right now, Wunderlich says, because millions of recession-scarred consumers — creditworthy folks with blots on their borrowing history — need to tap into credit as they continue rebuilding their lives.
But why start with the pet business, where Wags LLC provides financing programs through storefronts as well as independent breeders?
“We’re interested in going into under-served markets,” says Wunderlich, sounding just like the private-equity executive he was before he got into the dog-loan business.
Still, he adds, “This is a whole different thing. These are live animals.”
And that raises some questions. Is Wags LLC willing to repossess the family pet over a few missed payments? What if the collateral dies?
Repossessions, Wunderlich, are unlikely. The company is more interested in working out a repayment arrangement with the borrower rather than ending up with a parking lot full of repossessed dogs, cats, snakes and tropical birds for sale.
And the value of collateral? The company has put a lot of time into working out the value of animals throughout their lifetimes as its typical deal is a lease-to-own arrangement. The borrower plunks down a balloon payment on the residual value of the animal at the end of the lease term.
Just like that new car you drove off the lot, puppies lose much of their value quickly. A buyer is willing to pay top dollar for a purebred dog that’s eight to 12 weeks old. Later? Not so much.
“Each week, that dog depreciates pretty significantly,” says Wunderlich. Typically, Wags sets the residual value at about 15 percent of the sales price, which often runs a couple thousand dollars or more for a purebred animal.
Within two years, Wags and its sister company, Bristlecone Financing, expect to be working with 4,000 retailers of all types and processing about 16,000 contracts a month.
And they expect to boost revenues through sales of associated products — pet health insurance, for instance — to their borrowers.
“This is all about speed to market,” says Wunderlich.
