9 Q&A: SoMoLend.com offers a unique way for small businesses to access crowdfunding

CINCINNATI - Cincinnati businesswoman and attorney Candace Klein is devoted to helping small businesses get the financing they need to grow. In 2011, she launched SoMoLend (Social Mobile Lending), a crowdfunding site that allows small businesses to borrow money from friends, family and individual accredited investors.

SoMoLend also works with banks and other traditional lenders who've created a fund specifically set aside for small business loans.

SoMoLend was born from Klein's experience with Bad Girl Ventures, a micro-lending and business development organization she created for women business owners. Klein found many businesses had trouble getting traditional loans, so decided to develop an alternative.

9 Questions for Candace Klein (answered by spokeswoman Erin Klotz)

1. Why did you start SoMoLend?
The idea for SoMoLend came from this realization and the desire to assist small businesses that were not able to get a business loan to support their growth.

SoMoLend was founded in 2011 to fund small businesses that are not able to get loans, or want an alternative option. This concept was made possible through crowdfunding legislation passed with the JOBS Act in 2012.

2. What is your long-term vision for the company?
To change the way businesses finance growth, to continue to develop the breadth and depth of lending and growth-related services to small businesses in the United States, then to expand internationally to markets that have small business owners with similar needs and challenges.

3. Who can lend through SoMoLend?
Today, local governments, credit unions, banks, certain corporations and even friends and family can invest in small businesses with SoMoLend’s secure, transparent, easy-to-use platform. We will allow accredited investors to lend on the platform when this is allowed by the SEC later this year.

4. Who can borrow through SoMoLend?
Our target borrowers are small business owners within the United States. SoMoLend’s typical borrower has been in business for at least a year, needs the loan for a growth initiative, and has an average FICO score above 700.

5. What are main similarities and differences between getting a loan through SoMoLend and a traditional bank?
The traditional loan process through a bank requires the potential borrower to provide financial information, complete a credit check, and go through an underwriting process before an individual can be approved for a loan. A potential borrower going through the SoMoLend process will also have to go through these steps as they do with a traditional bank before they are approved for a loan.

The differences present the advantages of SoMoLend compared to traditional banks, and even more if you target your fundraising efforts to your friends, family and close customer base.

For instance, SoMoLend can match business owners seeking loans with lenders seeking to invest in businesses like theirs. Lenders on the site include a variety of corporate, organizational and institutional lenders such
as credit unions, hedge funds, banks, and economic development funds, as well as accredited investors.

Interest rates via crowdfunding may be less than a traditional lender, and if a small or medium-sized businesses (or SMB) utilizes rewards in conjunction with interest it may be a way to reduce the interest rate.

SMB’s complete one online application via a crowdfunding platform and then get matched to lenders, or target their customer crowd. Many of our campaigns are funded within 30-45 days or even sooner. This is much faster and easier than the traditional process of visiting multiple banks, completing multiple loan applications and having at least one follow up face-to-face meeting with the bank.

Funding a smaller amount successfully via the crowd can give a SMB leverage to fund a larger amount either through the crowd again, or a traditional lender.

As a SMB grows and becomes more successful the local community’s economy gets stronger. There is a community pride factor in knowing you have invested money in a local business to help fuel its growth.

6. Why do you think alternative financing is gaining so much traction?
Traditional lenders are risk averse and not focused on small businesses, which leaves businesses with no choice but to seek alternative financing options. This creates an opportunity for alternative lenders such as crowdfunding portals.

The Internet and social networking have provided the platform to change many business models for the better, and this has tremendous potential to streamline the small business lending and alternative financing processes.  Crowdfunding can drive economic development for the country – not just replace one system – with a more cost effective, efficient one.

7. What are the top two biggest challenges crowdfunding organizations like SoMoLend face?
The regulatory environment will have a large impact on the viability and future of crowdfunding. Currently the SEC has not yet submitted their proposed rules on crowdfunding related to the “crowd” or Title III of the JOBS Act for public comment. We believe that it is possible that the rules will be put forward for public comment by early 2014. If that occurs, we could see crowdfunding fully implemented by the end of next year. Recently the SEC has put forward their public comment on accredited investors, or Title.

Also, with any new, innovative product category it takes time to educate the market. Our market is comprised of small business borrowers and lenders. Small businesses need to understand that this alternative lending option is available, and what the rules and guidelines are. Lenders need to understand how crowdfunding platforms will mitigate fraud risk and what the rules and guidelines are.

8. How is SoMoLend different from sites like KickStarter or IndieGoGo that fund business ideas?
SoMoLend is a debt-based (business loan) funding platform that matches small business borrowers with lenders. SoMoLend is a transparent platform that enables lenders to understand the financial and business background of the businesses they are investing in, and borrowers to know who their lenders are, and they can communicate with each other.

Lenders get a return on their investment in the form of an interest payment and in some cases additional rewards. Our loan requests typically range from $500 to $500,000.

No other platforms have this mix of a small business borrower, the product of a commercial loan and interest payment ROI, and the lender pool via a transparent platform that we do at this time.

Other crowdfunding sites offer donation, rewards, or equity, and don’t specifically target small businesses. Other lending sites don’t have the transparency, small business focus or lending pool that we do. They each vary on the typical funding amount requested as well.

9. What are the new future plans for the site? Anything new coming?
There is constant ongoing development to refine our platform based on the needs of our customers and to support regulatory requirements, as well as to further develop our friends and family fundraising campaign offering and analytics tools.

Our short-term road map includes integration with bookkeeping software applications, and improved credit scoring methodology.

For more information:

Connect with WCPO Digital Contributor Feoshia Davis on Twitter: @feoshiawrites

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