When David Zalik founded GreenSky back in 2006, he quickly realized that his vision for creating big-ticket point-of-sale loans was far more radical than anything that most commercial bankers had ever heard of. Unfortunately, the radical nature of his proposed business model didn’t appeal to the bankers that he went to in search of startup loans to launch his company. As a result, Zalik was forced to finance the entire operation himself. He took out loans using his entire real estate empire, properties worth an estimated $12 million.
Building a new model from the ground up
Zalik took a huge risk to start his firm, which would eventually become known as GreenSky . The model he was proposing had never been tried before. Zalik was essentially trying to build a mechanism by which average consumers could have access to the same kind of bridge financing upon which large real estate developers and other commercial enterprises routinely rely. The brilliance of Zalik’s insight lay in the fact that those commercial businesses would be foregoing tens or hundreds of billions of dollars per year in projects if they didn’t have access to such findings. What Zalik saw was that the same thing was true in the retail sector. Yet, there were no such mechanisms for consumers to push their own home remodeling projects through. This meant that the home improvement industry was losing billions of dollars per year in projects that could have materialized if it weren’t for a lack of immediate liquidity.
The other key factor behind the enormous success of the GreenSky business model is that everyone involved in the company’s deals wins. The homeowners who are seeking to remodel but don’t have the liquid capital available aren’t typically just doing these projects on a pure whim. The remodeling projects themselves usually add far more to the value of the home than their cost, giving the homeowners an instant and large return on capital.
At the same time, the contractors who promote GreenSky loans get business that would have otherwise not been there. And the banks making the loans get prime loans on their books, improving their financial position.