Exclusive: Petal raises $200M debt facility to expand access to credit

Consumer credit card startup Petal has raised a mix of debt and equity to expand its lending capacity and serve more users, the company tells Axios exclusively.

Why it matters: The new financing will enable Petal to expand its credit card program at the same time other lenders are tightening their access to credit.

Details: Petal secured a $200 million debt facility from Victory Park Capital, an alternative investment firm specializing in private credit.

• The company raised $20 million more in equity financing from existing investors, adding to $35 million in funding it announced in May.
• It also agreed to a multi-year extension of existing term loan facilities and closed a new term loan facility for up to $20 million from Trinity Capital.

How it works: With its mobile app and Visa credit card, Petal helps consumers with little or no credit history responsibly build their credit.

• Rather than relying on credit scores for underwriting, the company uses bank account transaction data to determine the creditworthiness of consumers based on earning, saving, and spending trends.

Between the lines: Doing so enables Petal to extend credit to users who usually wouldn't qualify for a credit card from a bank like Chase or Capital One.

• It says more than 40% of consumers approved for a Petal card in the last year were turned down by another credit card provider before applying.

State of play: Petal's plan to expand its credit capabilities runs counter to broader industry trends, especially to the thin-file consumers that it serves.

• "It's harder to get credit today than it's been in many years, as a result of a number of factors," Petal founder Jason Rosen says.

• "You have a weaker economy. You have the meltdown among regional banks going on earlier this year. You have fintech companies that are struggling and credit scores that were inflated by the pandemic," he added.

The big picture: Recent St. Louis Fed data show that — excluding the 2008 financial crisis and the early days of the Covid pandemic — standards for credit card underwriting have tightened to their highest levels since the 90s.

• That's led to credit card rejection rates rising to their highest levels in five years, according to the New York Fed.

Of note: Since being founded in 2016, the company has raised more than $300 million in equity capital and more than $680 million in debt financing.