NEW
APPROACHES
—
The most novel new lender is
Kickfurther, run by 28-year-old
Sean De Clercq. Kickfurther
uses crowdfunding to purchase inventory on behalf of
small distributors and retailers, and raw materials for
manufacturers. Businesses
choose the rates and length of
the financing; how quickly an
order gets financed sends a
clear signal about whether the
offer was appropriately generous. The site has attracted a
crowd of some 1,000 users
since it arranged its first
transaction in November, right
out of an accelerator. In January, Nathan Morin of North
Coast Organics, which makes
certified organic and vegan
body products, posted a
finance request: $1,500 to
fulfill a purchase order, paid
back over two months with a
10 percent return. “I woke up
the next morning and it was
98 percent funded,” he says.
“I was amazed.”
HELP FROM THE
LITTLE CROWD
—
What of equity crowdfunding,
the simplified way for small
companies to sell shares
to ordinary investors? The
Securities and Exchange
Commission is more than two
years late in finishing crowdfunding rules, Congress is
threatening to intervene, and
many businesses have given
up, according to Richard
Swart, a researcher at the
University of California,
Berkeley, and an early crowdfunding advocate. Even
state-chartered platforms,
which are beyond the SEC’s
reach, “are basically all dead,”
he says. Instead, businesses
have gravitated toward platforms for wealthier, more
sophisticated investors, made
legal by a different part of the
2012 JOBS Act. Businesses
raised $490 million that way
in 2014, according to Swart,
who predicts such fundraising
will increase to about $1.7
billion by 2020.
THE SBA
AIMS SMALLER
—
Small Business Administration guarantees on small
loans actually fell during the
recession, as banks moved to
make bigger, more profitable
loans. OnDeck and other
online lenders picked up the
slack, and that has SBA
officials worried, says Bob
Coleman, who both tracks
and advises the SBA lending
industry. “When they see the
50 and 75 percent APR, they
understand how destructive
that is to Main Street small
business.” Now the SBA is
trying to reclaim the small-loan market with pilot programs to get more banks
making small loans. Despite
attacks on the programs
from bank regulators and
Congress, the agency’s
track record on small loans
is improving: “The future
of the SBA is loans under
$150,000,” says Coleman.
THE FUTURE OF
REGULATIONS
—
Consumers have long been
afforded some protection
from predatory lenders by
federal law, and the new
Consumer Financial Protection Bureau has in its four
years imposed new limits on
a variety of lenders. But even
though the agency is now
taking on payday loans, which
share some traits with mer-chant-cash-advance loans,
don’t expect regulators to
scrutinize the latter anytime
soon. Business owners, rightly
or wrongly, have always been
presumed more sophisticated
than consumers, and business
loans are exempted from
some consumer protections.
And with so many more
consumer-lending issues
still up for scrutiny, including
student loans, it will no doubt
be a while before regulators
sail into these uncharted
waters, if ever.
The Future of Money
When it comes to commercial lending,
Lending Club has plenty of company.
Some of its competitors are also
intermediaries that finance loans through
wealthy investors and hedge funds; others
make loans directly on their own balance
sheets. The biggest of them—and most have
been fully operational for less than two
years—claim they will make at least $100
million in small-business loans this year. But
there are dozens more, and it seems like each
month brings word of a new website gone
live. Here’s what else small businesses should
watch for in the next five years.
CONTINUED
ON PAGE 108 •
problem—as a problem that can be solved by technology,”
Laplanche says.
The company’s San Francisco headquarters, six floors in a
nondescript building, radiate big-league respectability. The
glassed-in boardroom and the sailboat model—Laplanche was
a champion yachtsman in France—that greet visitors to the
executive floor say conservative financial-services corporation,
but beneath the polished surfaces and behind the graceful
curves beats the heart of a technology company.
When Laplanche and his deputies talk about “product,”
more often than not they mean software code, not loans.
Lending Club’s software underwrites and prices each loan
and detects fraud. A third of all loan applications are never
examined by human eyes, except to look for fraud. So far, the
company’s portfolio has performed respectably: In the last
two years, for example, Lending Club’s annual loss rate was
between 3 and 4 percent. That’s only slightly higher than the
average credit card loss rate at the end of 2014, according to
the Federal Reserve—not bad for an upstart in the complicated
and mature world of making credit decisions.
All this technology has given Lending
Club a big cost advantage over banks, which
••••
MONEY
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84 - INC. - MAY 2015
