As anyone who knows me well knows, I am a huge fan of the disruption of normalcy that the Internet has created. Frankly, having a bunch of old white men in suits make decisions for us isn’t really how I want to live. So recently someone was bemoaning not being able to get a loan for their business and I was surprised that they would even consider going to a giant monster mega bank.
These banks are presently sitting on money because, frankly, the interest rates are so low that it doesn’t make sense to loan money out, period. They don't understand small business at all and they are only in business to protect themselves rather than offer a service to the community. So what’s the solution? Turn to the web.
There are a number of ways you can create the equivalent of a loan on the Internet.
“Applying” for these loans is going to be a very different experience from what you’re used to. For example, one of my favorite web-based funding sources is Kickstarter. With Kickstarter you’re going to need to produce a really clever video explaining your vision. From there the video is posted to Kickstarter and people “vote” by making micro investments in your idea. If your idea is good and enough people invest, you get the money. If not, you don’t. It’s definitely a way of also doing some market research because if your idea doesn’t do well with people considering giving you a loan, it may not do well if the project is funded.
This methodology was recently used by a local winery to actually fund a kitchen in their operation. Their financial goal was just $9000 but they actually exceeded the goal. This hyper local project proves that you don’t have to have national appeal to make a Kickstarter project work and shows just how powerful this program is. The kitchen will be up and running at the first part of the year and it was predominantly friends and neighbors who invested in it.
I’ve backed a number of Kickstarter projects including Martian Watches who wanted funding to create a Bluetooth-enabled watch that you use to control your smart phone.
As part of your Kickstarter loan there are different levels of investor in the loan for which you provide a “premium.” These premiums can be almost anything. With the kitchen project you got a bottle of olive oil at lower investment levels and there were private dinners for backers at higher levels. Pretty cool stuff. For the Martian watch project you actually got a Martian watch which I now have.
There are other websites like Kickstarter. For example, I’ve working on a fund raising project with Fundinggarage for expansion of the Curbside Car Show Calendar. Fundinggarage works identically to Kickstarter except that Fundinggarage is for things that are auto-related.
There are also more traditional loan vehicles on the Internet. For example, there’s a website called LendingClub where people invest their money into a pool and people and businesses borrow from that pool. Essentially LendingClub is for people with pretty good credit (FICO score about 650) but it’s very fast to just borrow money. This is also a great place to invest your money because your average rate of return is 8% with relatively low risk.
Even cooler, to me, is Prosper where you post your idea on their website and investors actually choose to invest in the idea. Prosper is sort of a mixture between Kickstarter and LendingClub but is great if you’ve got that business idea that is terrific but don’t quite have the money to pull it off.
For businesses who are looking for inventory there is a website like Kabbage. Kabbage is predominantly for business financing, which is what this blog post is about anyway. Kabbage essentially is a loan process also but is really quick, allowing you to take advantage of opportunities quickly.
The huge banking network that companies like Bank of America, Chase and Wells Fargo have created really serves nobody. These huge banks are a part of the reason we had the big financial collapse of 2008 although, of course, other factors contributed to this besides their stupid practices. These banks are great at conjuring up ways to fee you to death but are generally horrible at service. In fact, customer satisfaction surveys place these big banks in a ranking that is barely above Congress according to Clark Howard. Talk about a low score!
Local community banks where you actually get to speak with the officers of the bank are a much better choice. Here you actually get to have decision makers as part of your social circle which can really make the difference between quality service and getting screwed. At the very least, consider switching your banking to a small community bank, one with one or two branches.