Can't get the loan you need for your business? Confused by all the new lending options?
Well, as an entrepreneur, you know how this goes: Your misery is someone else's business opportunity.
Today Jared Hecht, Rohan Deshpande and Andres Moran will officially launch Fundera, an online marketplace, that, like Lendio and Biz2Credit before it, promises to connect business owners with multiple sources of loans. While Fundera is working with at least one Small Business Administration lender, Salt Lake City-based Celtic Bank, the emphasis is squarely on so-called alternative lenders such as partners OnDeck and CAN Capital (formerly Capital Access Network).
Fundera is backed by $3.4 million in financing from Khosla Ventures, First Round Capital, Lerer Ventures, SV Angel, and a group of individual angel investors.
To get financing through Fundera, you fill out an online application, which Hecht says should take about four to six minutes. The first section is about you, the second section is about your business, and the third section asks for financial data. The site then uses its own algorithm to provide you with three funding choices from its finance-industry partners.
"What we do is we really clear up and bring transparency to this world of nonbank alternative lending," says Hech.
Transparency is desperately needed. Especially since the financial crisis, a raft of new players have been coming up with new ways to lend money to small businesses, putting their own spins on merchant cash advances, factoring, and even seemingly simple short-term loans. Interest rates of more than 50 percent are not uncommon.
CAN Capital, one of the first U.S.-based alternative lenders, has lent about $3 billion since it started; OnDeck says it’s loaned out about $850 million so far. "We think alternative lending will be just as big, if not two to three times as big, as the business the banks are doing [in this segment]," says Hecht.
Hecht says that Fundera has taken pains not to build a mere lead generation engine for lenders. "The notion of selling data blindly we think is ultimately a horrible user experience," he says. "We want at least a 75 percent probability of you getting that loan." He also says a potential lender does not get any of your data, or contact information, without your express consent. Fundera makes money when deals close: Lenders pay Fundera from one to three percent of the loan amount as an origination fee.
Hecht says he’s working with about 20 lenders right now, and he sees the site topping out at about 40. He says he doesn’t want every lender on board (and there are some questionable outfits out there). He says he just wants the best.
The Fine Print
Fundera, like most loan brokers, is under no legal obligation to suggest a loan or other financial product that’s particularly suitable for you, your business, or your financial situation. Obviously, Fundera has an incentive to provide decent matches, and to make sure you really are pre-qualified for them: If it doesn’t, it won’t be around for long. In general, the site prefers SBA-backed loans, followed by term loans, equipment loans, factoring, and then merchant cash advances. But it also takes into account your own preferences and needs, such as interest rate, repayment period, whether or not the loan will be secured, and how long it will take you to actually get the funding.
Ami Kassar, CEO and founder of business broker MultiFunding, says that even if an algorithm is helping you do some great research on your financing options, you’ve still got to be aware of your own blind spots. Among them, he says, is the use of liens. Many alternative funders will put a lien on your company's assets, which means that in the event of a default they can go after those assets. Of course, many banks would do the same.
The problem is that if one lender already has a lien on your company's assets, that will make it much more difficult for you to get a traditional bank loan, even if you would otherwise qualify. Most banks want to have the so-called first lien, which means they’re first in line for your assets if things go badly. If somebody already has that first lien, the bank is relegated to second-lien status, which they’re unlikely to accept.
"Whatever financing choice you make at any given time should be done with careful consultation," says Kassar. "You should understand exactly what you're signing, and you should have some alternatives."