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Did you know that the US banking system is broken for small business owners?
Take it from the co-founder and US managing director of Funding Circle, Sam Hodges, who also operated and managed a chain of successful fitness gyms back in 2007. That was when he made the discovery about the US banking system.
Hodges needed a loan for business expansion. He has a profitable business and he’s got a good credit score. But despite these, banks had declined his loan applications one after the other. When he tried online financing companies, he couldn’t understand the terms and conditions offered to him which he knew just didn’t make sense.
Believe it or not he got denied 96 times. And that made him realize that something’s not right. How can big companies making tens of millions in revenue and a hundred workforce easily get approval for loans more than US$5 million when it’s almost impossible for smaller businesses like Hodges’ with a few million dollars in sales and less than 50 employees to get their loan applications approved?
Hodges said that there is a big gaping hole, which has gotten worse over the last 5 to 6 years.
Realizing the desperate situation, Hodges decided to launch Emergence Lending Network, an online marketplace catering to peer-to-peer lending network. In 2013, Emergence Lending Network merged with Funding Circle, a UK-based online marketplace. Through Funding Circle, small business owners are provided the opportunity to borrow money directly from institutional or individual investors.
How does it work?
If you are in need of funding, you need to pass the Funding Circle’s online eligibility test that runs an approximate 15 to 30 minutes. The underwriters of Funding Circle will activate a verification process to ensure that you are qualified for the loan. The verification process requires underwriters of Funding Circle to look into a lot of data which include:
- Profitability
- Credit score
- Quality of social media visibility
- Yelp reviews
These should help determine the health of the business. Each borrower will be provided with a grade and loan terms. This would give the lenders a basis for their decision on who or which businesses are positioned properly for the loan. To complete a loan, Hodges says it takes less than 14 days (2 weeks).
Since 2010, Funding Circle has processed more than US$750 million in the United States and the United Kingdom. The company projects it would lend out more than US$1 billion in 2015. Funding Circle was able to raise over US$123 million from Union Square Ventures, Index Ventures, and Accel Partners.
Online lending platforms are growing rapidly. Funding Circle and Lending Club are part of this larger sector. Lending Club is now valued at more than US$3.75 billion. Prosper, another online lending provider was valued last at US$650 million.
Fact is, all three – Lending Club, Prosper, and Funding Circle were mentioned in a recent report for using technology to help small businesses gain better access to capital. Karen Mills, formerly from the US Small Business Administration submitted the report.
Mills wrote in her report that the technology void left by many banks is being filled up by emerging online players. Technology is pushing for innovation within the banking sector just as Amazon.com and Square had adjusted and changed the payment business of small businesses.
Clearly, Funding Circle offers more than just the traditional financial assistance. Hodges said Funding Circle is laser focused on small businesses in need of financial assistance. Hodges wants small businesses to turn online and use the marketplace to get access to finance. He didn’t want them to go through what he had been through - 96 loan applications rejected!
If you’re looking for small business loan in Australia, this company can help you achieve your dreams.
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