Published Mon, Feb 1 2010 The recent struggles in the economy have created two situations that could be a boon to Fynanz Inc.: more people are going back to school and fewer lenders are willing to help.

The New York-based company, which has closed a $6.5 million Series A round, has developed a turn-key technology platform for underwriting, originating and servicing private student loans. Students and families are increasingly turning to private loans as the cost of higher education continues to outpace increases in federal student loan program limits. Private student loans offer students and families a resource to help bridge the funding gap that exists between the actual cost of higher education and federal aid, grants and scholarships available.

Due to recent upheaval in the credit markets, many traditional providers of private student loans have exited the market. Among those lenders making cuts or opting out entirely were J.P. Morgan Chase & Co., HSBC Holdings PLC and M&T Bank. The idea behind the Fynanz Student Lending Platform is to allow a credit union to fill that void.

Fynanz puts credit unions in the private student lending business by providing a turn-key loan product that includes all of the tools to service the loan.

The company was seeded with $1 million last summer from Brazos Group, the nation’s fifth-largest holder of student loans; Zelkova Ventures; and DFJ Gotham, all of which joined lead investor Draper Fisher Jurvetson for the new Series A.

“Everyone is going back to school and there’s a huge demand for student loans,” DFJ Gotham Principal Thatcher Bell said. “There’s this enormous opportunity that’s not going away. There are some organizations trying to cobble together a similar offering, but nobody has put forth a technology platform to bring all the pieces together.”

Fynanz’s revenue model is transaction-based. It takes a 2.5% origination fee based on the balance of the loan and charges a 1% servicing fee based on the value of the balance. Chief Executive Vince Passione said that in the first school year in which the product has been available, the company has built a portfolio of about 1,000 loans distributed to 450 schools across 47 states through a network of 30 credit unions.

He said the recent funding round will be used to grow that network to a larger portion of the roughly 8,000 credit unions in the U.S. The company is also looking to develop more products beyond the 15-year variable rate loan currently offered.

Passione was originally brought in by DFJ Gotham as a consultant, but both the founders and the investors quickly realized he was well-suited to run the company. Passione was the former chief operating officer of DealerTrack Holdings Inc., where he focused on the company’s main product: a credit portal that connects car dealers to financing sources. DealerTrack had a successful public offering in 2005 and today processes more than 35% of all auto finance loan applications in the U.S.

Bell previously worked at the venture arm of Capital One on the team that invested in DealerTrack.

“One of the reasons I got so excited about finance is I see some analogous dynamics that are pretty positive,” Bell said. “Like most venture guys, we look for a huge market opportunity and a great team, and we have that here.”

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