For Cash-Strapped Small Businesses and Entrepreneurs, These Digital Solutions Provide Funds

05/07/2015 04:04 pm ET | Updated May 07, 2016


To round off National Small Business Week, we're looking at ways small business owners and entrepreneurs can get a leg up on short-term funding and beginning capital. All online, and fast.

As a small business owner or budding entrepreneur, perhaps you're running out of resources to bootstrap, or spending cash as fast as you can make it. If you need a cash infusion or are ready to explore a business loan, fear not--you may have some options outside of marching to your local bank hat-in-hand and begging for a business loan.

Online "P2P" (peer-to-peer) lenders may be willing to consider you or your business for financing. For the basics on how it all works, first check out this and this. In a nutshell, should you qualify, investors and institutions in the online marketplace are ready to lend you money with funds to be paid back like regular loans.

"No" from Shark Tank, "Yes" from BlueVine
In 2012, Scott Shields and Mona Weiss pitched their startup Eco Nuts, an organic nut-based cleaning products business, on ABC's "Shark Tank." The duo were turned down for funding. After the show, orders exploded--a typical after-effect--and they needed working capital fast to cover order fulfillment costs. BlueVine supplied it. The company's technology and algorithm-based underwriting model helped fund Eco Nuts in a fraction of the time than had they sought a traditional bank loan. Several hundred thousand dollars in funding and a year later, Eco Nuts reached a pivotal point by doubling in size and actually qualifying for a small business bank loan.

Most small businesses today cannot qualify for traditional bank financing because they don't have positive cash flow or sufficient business history. They can then turn to alternative financing companies like BlueVine to grow and "graduate" into traditional banking.

"For ages, lenders have focused exclusively on credit risk at the exclusion of access, speed and convenience. Four out of five SMBs (small to medium-sized businesses)--healthy, thriving businesses--are declined for a bank loan for a lack of credit history. BlueVine has changed that. We apply a customer-centric approach powered by technology to make funds accessible to small businesses across the country," said BlueVine CEO Eyal Lifshitz.

Partnering with Small Businesses
Another large P2P lender, Funding Circle, has partnered with the National Small Business Association (NSBA) to provide 65,000 active members with access to affordable loans and financial literacy tools. According to the company's Co-Founder and U.S. Managing Director Sam Hodges, America's 28 million small businesses deserve a better lending experience than what is currently available.

"Successful and established businesses shouldn't have to scramble to access affordable financing that is critical to growing their business," Hodges said. "Our partnership with the NSBA will connect more entrepreneurs directly with the capital they need to grow, hire more people and stimulate their local economies," Hodges said. Funding Circle has funded over $1 billion in loans to 8,000 small business in the UK an the US.

Fostering Entrepreneurship
Finally, P2P lender SoFi is hosting an entrepreneur program with applications accepted until June 30. SoFi started as a Stanford alumni fund to help its fellow students. Now as a marketplace lender, it hopes to provide graduates with the chance to build their business ideas first by refinancing and deferring payment on their student loans and then connection them to mentors and investors. SoFi came to prominence as the largest marketplace refinancer of student loans, and is also currently the only P2P lender that has forayed into the complex world of mortgage lending.

"We've seen firsthand how student debt impedes entrepreneurism. Our program gives entrepreneurs the runway to build amazing businesses without worrying about how to make the next student loan payment," said CEO and Co-Founder Mike Cagney. To date, SoFi has funded $2 billion in student loan refinances and other loans.

What's Next
With the exception of Lending Club, P2P lenders remain private companies funded by investors or institutions looking for returns from alternative fixed income investments. They mostly follow proprietary data models to determine loan approvals, and are competitive when compared to traditional bank financing and depending on credit risk.