I written plenty of earlier articles about innovative funding companies that are beginning to get tangible market share in funding for the small business sector. While the banking industry has reacted largely with a yawn, more than $100 billion of financing has been pushed through technology platforms since 2006 to finance growth and expenses of a broad range of smaller companies.
These innovative funders operate from technology driven platforms in five primary categories: 1) merchant cash advance funding, like CAN Capital or Rapid Advance; 2) business lenders like IOUCentral and OnDeckCapital; 3) digital lenders that only finance online companies, like Kabbage and PayPal; 4) factoring, like The Receivable Exchange or NOWAccount and 5) other innovative lenders that offer unique funding models, like Guidant, Taulia, or Lighter Capital
The majority of this funding has provided cash to the ‘low hanging fruit’ competition, or business that banks didn’t want in the first place: unsecured working capital loans to retail stores, service companies, restaurants and the like. Others though are already competing with some specialty lenders, particularly factors and business credit cards.
Now comes GroundFloor.com, a North Carolina based company that has launched a peer-to-peer lending platform where investors can chip in to finance new home and remodeled home construction. They recently closed their first two loans in metro Atlanta, raising $82,000 (@8%) to fix up a property for resale and $440,000 (@11%)for new construction of four townhomes.
Investors ponied up $100 to $5,000 for these secured investments that are paying 10 to 20 times a comparable CD rate.
Guess who they see themselves competing with for funds but not for loans? (Hint: banks)
Keep your eyes on this rising league of business funders. Today it’s residential construction, tomorrow….other business financing, like SBA loans, credit cards and equipment leasing can’t be too far down the list.