Summary of the Upstart Funding Agreement

The following is a summary of the key terms of the Upstart Funding Agreement. This summary is being provided as a convenience but is not a substitute for reading the agreement in its entirety. 

  1. Share a percent of income for 5 or 10 years:  An upstart agrees to share a percentage of (1) their total income (as reported on your tax return) with us for 5 or 10 years, and (2) any unrealized equity gains that exist on the last day of their payment term.

  1. Marriage.  If an upstart is or gets married they will owe their income share on half of any income from jointly owned assets.  

  1. Equity Gains:  At the end of an upstart’s payment term, they will owe a percentage of any financial gain from “equity” that vested or was otherwise acquired by them during their income share term. An upstart will only owe an income share payment at this time if the equity can be sold (for example, its a publicly traded security or a secondary market exists for it).  If it cannot be sold at this time then the upstart’s income share term may be extended up to 5 additional years solely for the purpose of capturing the equity gain if it becomes liquid at any point during the extended term.

  1. Deferrals: An upstart’s income share payments will be waived in any year their total income is less than an income threshold.  This deferral threshold will be disclosed to an upstart as part of their terms.  For each year that an upstart’s repayments are deferred, an additional year will be added to their income share term, up to a maximum of 5 additional years.  After the fifth deferral an upstart will be required to pay their income share unless they are eligible for an exemption.

  1. Exemptions:  For any year that an upstart’s total income is less than $20,000 they will be exempt from paying their income share in that year. This will not extend the upstart’s payment term unless their income share term has not be extended more than 5 times.

  1. Repayment Cap: The entire amount an upstart pays under their agreement is capped to an amount equal to (1) three times the funding amount if their initial income share term is 5 years or (2) five times the funding amount if their  initial income share term is 10 years.

  1. Payment Term & Schedule.  An upstart’s initial income share term is 5 or 10 years, however, in each case it may be extended by up to an additional 5 years if (1) their payments are deferred or exempt or (2) if at the end of their income share term any unrealized equity gain is not liquid.  An upstart agrees to make estimated income share payments each month, and an annual reconciliation payment in June if their monthly payments for the previous year do not equal their income share amount.

  1. Fees.  An upstart agrees to pay us fees if they successfully  receive their funding amount and in connection with certain actions (or inactions) under their funding agreement, including if they underpay, are late with their payments, and/or don’t deliver their tax return by the due date .  More information about the fees we charge can be found here.

  1. Provide tax returns and other information.  An upstart agrees to provide us with a copy of their tax returns each year so we can verify (i) their eligibility for any deferral or exemption and (ii) if they paid the correct amount of income share.  
  1. They also agree to provide us with any additional information we request to verify their income and/or equity gains.
  2. At our request, an upstart agrees to provide us with a power of attorney to request a transcript of any tax returns during their income share term.

  1. Publicity and Marketing.  An upstart agrees that we can use their information included in their profile in marketing activities that we engage in.

  1. Default and Conversion to Traditional Loan.  If an upstart does not meet certain commitments under their agreement with us, a “default” will occur, e.g., if they do not pay the reconciliation amount on time, a bankruptcy or similar proceedings is started against them, they don’t tell us the truth or misrepresent something important, get convicted of a felony, or otherwise fail to do what they said they would do in the agreement.  If default occurs we may decide to take certain actions including terminating their agreement or converting their income share payment obligations into a fixed rate, closed end loan with an interest rate of 14.99% for the remainder of their income share term.  If converted to loan, the amount that an upstart owes will be the funding amount they received, less any payments they’ve made to us, plus a 14.99% interest rate applied from the beginning of their income share term to the unpaid amounts.  And after the conversion, an upstart will be required to pay us a fixed amount each month for the rest of their income share term, irrespective of how much they earn.  More information about this and the other actions we may take if an upstart defaults can be found here.

  1. Arbitration.  An upstart agrees that if they get into a dispute with us, they will contact us first, and if we cannot resolve the issues then we will resolve it through arbitration.  An upstart is allowed to opt out of arbitration but they must tell us within 30 days of agreeing to the Upstart Funding Agreement.

If there is any inconsistency between this summary and the Upstart Funding Agreement, the terms in the Upstart Funding Agreement will apply.

UFA Summary 20130808