What’s the most daunting part of running a small business? Ask most business owners and they’ll tell you: applying for a loan.
These days, banks are failing to meet small business owners’ demand for credit – in 2016, large banks still only approved 54% of small business owners who applied for loans, leaving a lot of entrepreneurs out to dry.
So, over the past few years, online lenders have stepped in to address the under-served segment of the market: small business owners who couldn’t qualify for bank loans. Businesses are denied loans for a number of reasons – anything from the business’s age to it operating in a risky industry to low credit scores of its owner. But online lending isn’t a perfect market either. It’s got its fair share of problems. And when Jared Hecht’s cousin Zach was searching for a loan a few years ago, he learned this firsthand.
Zach owns a chain of fast casual sushi restaurants in Ohio called Fusian. As the restaurant sought to expand, Zach had to figure out the best way to fund their growth.
At first, Jared offered to invest in the company, but Zach wanted to maintain 100% ownership of the business. Instead, Zach wanted a loan to cover the expansion costs. He wanted $300,000 with terms to pay it back over three years at 10% interest.
Jared recommended Zach go to the bank to get a loan. When Zach informed him they’d been turned away by the bank, Jared was shocked – especially given Zach’s experience as a co-founder of GroupMe and an early employee at Tumblr. How could this successful, profitable business be denied the capital needed for growth?
So the cousins began to search online, but they were immediately bombarded with phone calls from countless lenders and brokers – some of whom had purchased their information from elsewhere. The world of online lending was complex and intimidating. They didn’t know who to trust.
Zach was far from the only entrepreneur to encounter this problem. The online lending industry was missing something crucial for small business owners: a way to sort through the clutter, figure out which lenders to trust, save time, and make more informed decisions about which loan options suite their business.
So, in 2014, Jared founded Fundera to solve these problems.
After conducting extensive research with Zach over the course of his search for a loan, Jared identified several core problems with the small business lending market.
First, there’s no one-size-fits-all loan product for small businesses. Each business has different financial needs—and every business loan comes with varying terms, costs and uses. So any solution would have to be tailored enough to truly address the needs of each individual business.
Second, customers needed a way to make comparisons between products and lenders to select the best option. And that’s not possible without having access to necessary information about each loan. Small business owners are often ill-equipped to figure out which product would best fit their needs. In fact, less than 7% of small businesses have a CFO, and while business owners might be skilled in running their businesses, they aren’t necessarily trained in finance.
To add insult to injury, loan prices and terms are depicted inconsistently across lenders and products – leaving business owners without an easy way to compare offers and select the best one. Even brokers, who are supposed to help find the best deal for their clients, often offer advice that’s biased to their profits, given their incentives and contracts with particular lenders.
And on top of all that, the entire process of applying for a loan is a pain in the neck. The time and paperwork required is a huge burden on small business owners. Federal Reserve data shows that the average small business owner approaches multiple banks in search of a loan, and spends over 24 full man-hours doing the research necessary.
It wasn’t hard for Jared to recognize the systemic issues in small business lending. The challenge was building a product that could be a real solution for small business owners.
Fundera is a new kind of loan broker that is leveraging software to streamline the process of finding a small business loan. With a smart common app to 30 different lenders, algorithms that determine the best fit for every business, and free tools like loan calculators and credit monitoring, Fundera’s purpose is to save time and money for small business owners seeking capital, and help them make the best financial decisions for their business
The online common application gets smarter as small business owners answer each question, cutting down on unnecessary questions and reducing the search time from weeks or months to minutes. And in addition to human support, Fundera also provides clear disclosures, tools and content to help small business owners navigate the process, compare offers and save money.
Fundera aims to be a one-stop shop for every business owner’s financing needs – particularly in such a confusing and overwhelming industry. And while online lending had its fair share of issues in the past year, the future’s looking bright.
As business owners increasingly prefer to shop online, their appetite to compare prices and save money grows – and Fundera’s goal is to empower them to comparison shop on their financing options.
In every industry from travel booking to investing, consumers have shown a desire to automate the intermediaries – leading to the rise of companies like Kayak and Betterment. Online lending will be no different.
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