to make lower-interest-rate loans.” Lower
interest rates then attract more borrow-
ers, “so you have this really positive,
reinforcing, virtuous cycle.”
Of course, these are great times to
be in the small-business-loan business—
and neither Lending Club, which was
getting off the ground during the last
financial crisis, nor any of its newer
competitors have yet been fully tested
by an economic downturn. And it’s
possible that those most resistant to
lower interest rates might be, ironically,
small businesses themselves.
“Small-business owners are
extremely busy, and they just won’t
shop carefully for cheaper loans,” says
Ross. “It’s too much work. They’re
going to trade their time for yield.”
Just ask Murat Uyaroglu. Two
months after taking out his Lending
Club loan, he went back to the trough.
His very first Brooklyn coffee shop,
named Prospect Perk, seemed ever more
diminished compared with the sleek,
expanding Hungry Ghost universe.
“Every time I went there, I liked the
coffee and the service, but the design,
the ambiance, bothered me,” he says.
“You’ve got to change the whole thing.”
Thinking, rightly, that Lending Club
would not lend him more money so soon,
he turned instead to OnDeck, which had
lent him money once before, and bor-
rowed $100,000 for 18 months. It cost
him $30,000, at what Uyaroglu assumed
was the same rate he had gotten from
Lending Club. It was actually more ex-
pensive than that. (OnDeck, like many
short-term lenders, prefers to present
its fees as cents on the dollar, or factors,
rather than as APRs. Factors almost
always appear to be lower than APRs
on loans of under two years’ term.)
But Uyaroglu shrugged off the higher
cost of this loan. “Regardless of what it
is, I’ll tell you why it doesn’t matter
if I’m paying $30,000 to them,” he says
as we sit in his $1,300 chairs. He
upgraded nearly everything at Prospect
Perk, he tells me, from the espresso
machines to the benches outside, and
rechristened it as the fourth Hungry
Ghost. Immediately after the makeover,
sales went up dramatically.
“Our first month as a Hungry Ghost,
in January, is the highest gross sales of
any month since we opened as Prospect
Perk,” he explains. Even if he could have
gotten a better rate elsewhere, “because
of that painless, nearly overnight loan
that I got, I am paying that off, and then
have some to put in my pockets.” That
sort of attitude might sound like an excuse to give up on the problem of building a faster, cheaper small-business loan.
But it’s also a wide-open opportunity for
the Lending Clubs of the future.
ROBB MANDELBAUM lives in Brooklyn. He
wrote about crowdfunding in the May
2014 issue of Inc.
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