Much has been made of the woes suddenly being faced by online lenders, with Lending Club serving as the poster child, perhaps, of murky loan review processes and internal controls. The fact remains that there will still be demand for online platforms linking lenders and borrowers directly. The regulatory landscape is uncertain, that’s for certain, but the key remains to go where the demand exists. One pocket of online lending that perhaps has been flying under the radar focuses on the smallest businesses, with no real paper trail. New Business Funders (NBF), which launched mid-month, is offering unsecured credit lines to those as-yet-untested businesses.
Why now? “This may be the most underserved market on the planet,” Founder and Chief Executive Officer Troy Bohlke told PYMNTS. He cited research showing that there are 20,000 URLs being registered daily, with an annual tally of several million, and according to Bohlke, the mere fact that these business owners are first staking their claims on a Web presence speaks to the fact that they are in the earliest stages of launching, with “no cash flow, no tax returns in place, possibly not even a formal business plan."
The firm itself has been able to track down new business formations, with view of just who has filed for LLCs or websites, with pertinent info that allows NBF to reach out via emails, phone calls, affiliate marketing and even outreach through real estate and mortgage outfits (as firms either rent new space or the smallest business owners may offer up their properties as collateral or to raise cash).
Bohlke said it is not especially useful to lump online lenders together or paint them with a broad brush, especially in the wake of the clouds gathering over Lending Club and other firms in the industry at large.
One key differentiator between NBF and firms such as Lending Club, said Bohlke, is that the other firms had essentially gathered capital in a crowdfunding manner, with participation by non-accredited investors. The other pitfall that may draw increased scrutiny among those who scale lower down the credit continuum: Firms that state they look for loans to be made to borrowers with FICO scores of 700 and above — and yet extend loans to those with noticeably lower scores in an effort to chase new business or returns — are likely to find themselves in trouble, stated Bohlke.
And yet, there is a real need for funding for the smallest of small businesses, said Bohlke. The Small Business Administration has estimated that more than half of all small businesses fail within three short years of launching. Among the biggest sureties to guarantee failure: lack of timely access to capital.
Under the NBF model, said Bohlke, collateral is not required, nor statements that might be hard to come by, given the fact that many firms have no operating history at all. The firm does, however, require a 680 FICO sore (or better) to be funded, with zero percent interest charged in the first half year to full year after receiving funding.
Startup capital disbursed to small business owners, explained Bohlke, comes through business credit lines, which can range from between $20,000 and $250,000, though the executive told PYMNTS the loans tend to cluster around the $40,000 to $80,000 range. Once a FICO report is submitted, a quote is returned by NBF to a would-be borrower, perhaps as quickly as 24 hours later. And, post-approval, funds can be disbursed between 15 and 21 business days later.