Candace Klein knows firsthand how hard it is to raise startup funds. When she needed capital for her first business, Bad Girl Ventures, a microfinance organization for Cincinnati women-owned businesses, she tapped several relatives--a move that led to a few "very uncomfortable Thanksgivings."
That experience inspired SoMoLend, her online platform that plays matchmaker between businesses and investors, often in the same geographic neighborhood. Since the beta site launched in May 2012, SoMoLend has facilitated some 100 small-business loans totaling nearly $3.5 million. Loans range from $500 to $1 million, with interest rates ranging from 3 to 22 percent and terms spanning six weeks to five years, depending on a business's needs and creditworthiness. SoMoLend also charges a 4 percent transaction fee on funds borrowed.
Lenders using the site include banks, credit unions, community-development financial institutions, cities, churches, foundations, chambers of commerce and individual investors. Once securities-based crowdfunding becomes legal this year, the site will facilitate those types of investments as well.
We spoke with Klein about putting borrowers and lenders together.
How does SoMoLend differ from other web-based financing platforms?
What we offer is the option to diversify. So entrepreneurs are not just being connected to a bank; they're being connected to a myriad of traditional and nontraditional funding sources all at one time. You fill out the application, and we'll find the right type of lender for you. A lot of the matching services right now are like Match.com. We're more like eHarmony. We provide a more personalized experience for both borrower and lender.
How does the matching work?
As an entrepreneur, if you're signing up for a loan on SoMoLend, we assign an advocate to you. So you'll actually be contacted by one of our staff. We'll interview you about what church you attend, and if there are any big foundations in your community. I'll give you an example. There was a grocery store that was just funded on SoMoLend. It was a $550,000 loan, and it ended up having seven different lenders. Those lenders included the city, a nonprofit, a church, two businesses next door to the grocery store and a couple of banks. The whole community came together to support this grocery store.
What information do 'treps provide?
When a borrower first signs up they set up a public profile. Then they're taken to the equivalent of an SBA loan application. We'll ask them to upload their business plan, their Secretary of State documentation and their Employer Identification Number. They'll also be asked to give us the personal financials of each person who has 20 percent ownership or more in the company, and we'll ask for three years of business financials if they're available. It's typically a 15- to 30-minute application.
Do borrowers need good credit?
We're patent-pending right now with an underwriting algorithm that looks at social reputation and behavior more heavily than FICO score. So a startup with bad credit is actually still eligible for money on our platform.
How long does the process take?
Borrowers typically hear from us within 48 hours of submitting their application. That's when we assign them an advocate. And we have loans closed in as quickly as five days.
How does the site support friend and family lending?
We make it contractual. And we handle the aggregation. I am an entrepreneur who raised friends-and-family capital and had to keep track of different loans to different people with different terms. It was so difficult. On the SoMoLend platform, we manage all of that. We pay for the transaction, we provide the contracts and we manage the payment processing via ACH (Automated Clearing House). So the entrepreneur doesn't have to worry about keeping track of all those different lenders.