You don't have to wait until next January to get a taste of what crowdfunding can do to jump-start your business. While that's when the full provisions of the Jumpstart our Business Startups JOBS Act are scheduled to go into effect, including liberalized rules for crowdfunding, a peer-to-peer lending company in Cincinnati has already opened its doors.
SoMoLend will help connect small businesses and startups with banks, corporations, chambers of commerce and cities to get small business loans at lower-than-average rates. By the end of the year, the Securities and Exchange Commission's deadline for rolling out the necessary regulatory framework, the company plans to expand its platform to include friends, family, customers, local supporters and social media as lending partners. By then, though, SoMoLend hopes to have 1,000 loans already in place using its current network of lending partners.
"We're like Match.com between borrowers and lenders," Candace Klein, SoMoLend's founder and CEO, told BusinessNewsDaily. "We're simply an intermediary."
Here's how it works. Entrepreneurs whose businesses are registered in their state of operation and have a valid federal tax ID number fill out a loan application and create a SoMoLend profile. Local lenders connect with entrepreneurs to request more information and make loan offers. Entrepreneurs receive funding and lenders are repaid with interest.
The maximum loan is $1 million, with the average loan size between $30,000 and $50,000. The terms of each loan are set by the borrower's risk level, which is determined by SoMoLend's patent-pending underwriting algorithm. Because SoMoLend focuses only on commercial loans, the company can provide complete transparency to lenders.
SoMoLend charges borrowers a 2 percent origination fee when financing is obtained; lenders pay a 1.8 percent portfolio management fee.
What sets SoMoLend apart from competitors is that the platform enables a borrower to build a transparent social profile as it repays its debt and provides proof of greater credit worthiness, which can lift loan ceilings and reduce borrowing costs on future financing.
"It makes your social reputation bankable," Klein said. ""Banks are intrigued by this building of social reputation."
Key Bank became the company's first lending partner in September 2011, and has now been joined by The Economic and Community Institute in Columbus, Ohio, and The Business of Good Foundation in Cleveland.
Last month, the company closed a $1.17 million seed-stage investment round, which will be used to complete an alpha application of the software, create market underwriting standards and develop a broader capitalization plan.
Reach BusinessNewsDaily senior writer Ned Smith at firstname.lastname@example.org. Follow him on Twitter @nedbsmith.